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General Mills Revealed as 3G Capital Takeover Target by Citigroup

May 10, 2016
3G Capital, which also controls Burger King owner Restaurant Brands International Inc., is famous for buying companies and squeezing costs.

General Mills Inc. may be a takeover candidate for 3G Capital, the private equity firm that has driven consolidation in the food industry with the help of Warren Buffett, according to Citigroup Inc.

Kraft Heinz Foods Co., created last year in the merger orchestrated by 3G, could acquire General Mills (IW 500/75) for $86 a share, Citigroup analyst David Driscoll said in a report on Tuesday. That would be a 37% premium to General Mills’ stock price as of the close on Monday.

3G Capital, which also controls Burger King owner Restaurant Brands International Inc., is famous for buying companies and squeezing costs. Its takeover spree has left analysts and investors speculating about its next buyout. With General Mills, 3G could boost the breakfast-cereal maker’s operating margins by 7.7 percentage points to 25%, Driscoll estimates.

Representatives for Kraft Heinz and General Mills declined to comment.

General Mills gained as much as 1.7% to $63.80 in the wake of the report. The stock was previously up 8.8% this year.

Kraft Heinz is coming off a better-than-expected first quarter, evidence that its merger strategy is paying off. Excluding some items, profit was 73 cents per share in the period. The average estimate of analysts surveyed by Bloomberg was 61 cents. Revenue for the quarter was $6.57 billion, beating an estimate of $6.48 billion.

Kraft Heinz has used job cuts and other belt-tightening tactics to cope with sluggish sales in the packaged-food industry. The strategy is a hallmark of 3G, which was founded by Brazilian billionaire Jorge Paulo Lemann.

The investment firm teamed up with Buffett in 2013 in a buyout deal that took Heinz private. They got together again last year to engineer the merger that created Kraft Heinz.

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