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Pillsbury Agrees To Acquire Pet For $2.6 Billion

Tue., Jan. 10, 1995

Grand Metropolitan PLC’s Pillsbury division agreed to buy Pet Inc., confirming expectations that the maker of Old El Paso foods would link up with a larger company with stronger marketing power.

Grand Met announced the $2.6 billion deal Monday. Analysts had been predicting Pet would be sold since it split off from Whitman Corp. in 1991. Reported suitors have included RJR Nabisco Holdings Corp., Nestle SA, ConAgra Inc., Unilever PLC and H.J. Heinz Co.

Pet’s stock price shot up $5.37-1/2 per share Monday to $25.50, bringing it just below the $26 offered by Grand Met.

Analysts say Pillsbury’s deeper pockets will allow it to make Pet’s best-known brands more competitive. The deal gives Pillsbury a strong entry in the growing Mexican food market with the leading brand.

Old El Paso has more than 100 products in the $1 billion Mexican food category. Its Progresso soup line is second only to Campbell’s.

“Pet provides us with growing brands, breadth and depth with customers and consumers, and excellent opportunities for the future,” Paul S. Walsh, Pillsbury’s chief executive.

Martin Romm, an analyst with CS First Boston, said the two companies have few overlapping product lines. He said Grand Met had been looking to expand its food business since it bought Pillsbury in 1989.

“I think Pet management did a very good job in shepherding those brands,” he said of Old El Paso and Progresso. “With the deeper pockets of Pillsbury and Grand Met I would expect they would be more competitive.”

Pillsbury’s product lineup also includes Pillsbury rolls, Green Giant vegetables, Haagen-Dazs ice cream and Jeno’s, Totino’s and Pappalo’s pizza.

Grand Met’s statement said cost savings from the merger would allow increased investment in Pet brands.

Pillsbury will offer $26 per share for all Pet’s common stock in a tender offer that could begin as early as Wednesday, Grand Met said. Pet’s board has unanimously approved the offer.

“We believe the transaction is an outstanding value for our stockholders,” said Miles L. Marsh, chairman and chief executive of Pet.

Pet had operating income of $223 million on revenue of $1.6 billion last year. Pillsbury, based in Minneapolis, had about $4 billion in sales last year.

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