General Mills to sell North American yogurt business to French dairy companies for $2.1 billion

By Ciara Linnane

Lactalis will acquire the U.S. business, while Sodiaal will take over the Canadian operation

General Mills Inc. said Thursday it has reached an agreement to sell its North American yogurt business to French dairy companies Lactalis and Sodiaal for $2.1 billion in cash.

The news was first reported by Bloomberg, citing people with knowledge of the matter.

General Mills (GIS), parent to brands including Cheerios, Nature Valley, Blue Buffalo, Häagen-Dazs, Old El Paso, Pillsbury and Betty Crocker, is expecting the deal to be about 3% dilutive to adjusted per-share earnings in the first year after close. Proceeds will be used for share buybacks.

Once the deal closes, the U.S. and Canadian businesses will operate independently, with the U.S. business to become part of Lactalis, while Sodiaal will acquire the Canadian business. The deals are expected to close in 2025.

The brands to be sold include the household name Yoplait, along with Liberté, Go-Gurt, Oui and Mountain High, as well as manufacturing facilities in Murfreesboro, Tenn.; Reed City, Mich.; and Saint-Hyacinthe, Québec.

The North American business generated a combined roughly $1.5 billion in sales in fiscal 2024.

The move comes at a time of growing competition with Danone SA (FR:BN) and Chobani Inc. and as General Mills seeks to match its portfolio with growth segments such as premium pet food and organic snacks, Bloomberg reported.

"Today's announcement represents another significant step forward for General Mills in advancing our Accelerate strategy and our portfolio reshaping ambitions," said Chairman and Chief Executive Jeff Harmening in prepared remarks. "Upon completion of these divestitures, we will have turned over nearly 30 percent of our net sales base since fiscal 2018."

Previous deals include the purchase of Blue Buffalo pet food in 2018, the sale of Green Giant canned and frozen vegetables in 2015, and the sale of the Hamburger Helper brand in 2022.

General Mills also sold its European yogurt business to Sodiaal in 2021, in exchange for full control of the Canadian Yoplait business.

Bernstein analysts noted that the company's yogurt business was the pride of the portfolio 20 years ago, enjoying rapid growth and high margins that were second only to the cereals business.

The company owned the leading brand - Yoplait - in what was a relatively immature and still fast-growing category that had only reached the U.S. market in the 1970s from Europe, analysts led by Alexia Howard wrote in a note to clients.

"But General Mills was either late to market or mis-executed around some key innovations pioneered by others in the space, most notably probiotics (led by Danone's Activia line) and more importantly the Greek yogurt phenomenon (revolutionized by Chobani)," the analysts wrote.

In both instances, the company's missteps led to a weakened position in the category and likely shrinking margins. While the company has not made Ebitda disclosures for the business, it seems likely that margins have fallen from the roughly 20% level Bernstein believes they were at two decades ago.

"Overall we think this is a good move for General Mills," the analysts wrote. It should help the company pivot toward faster-growing categories and shed businesses that are not profitable.

Bernstein has a market perform rating on General Mills' stock.

The company will offer further details of the expected financial impact when it reports first-quarter earnings next week.

The stock was down 0.7% Thursday but is up 11.4% in the year to date, while the S&P 500 has gained 16.6%.

-Ciara Linnane

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09-12-24 1307ET

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