British conglomerate Grand Metropolitan PLC cut a deal Sunday to buy Pillsbury Co. for $5.7 billion, apparently ending a 2 1/2-month takeover battle that the Minneapolis-based producer of flour, Green Giant foods and Haagen-Dazs ice cream fought in the board rooms and the courts.
The acquisition would continue a spate of huge takeovers that have rocked Wall Street this year, including deals in the food industry that have raised concern in some quarters about the possible impact on consumers.
The takeover agreement came two days after Pillsbury suffered a stunning defeat in court. A Delaware judge struck down key portions of Pillsbury's "poison pill" anti-takeover strategy, which would have made the takeover prohibitively expensive. The judge also invalidated another of Pillsbury's moves to fend off Grand Met: the spinoff of its ailing Burger King fast-food chain into a separate company.
Grand Met agreed to purchase all the outstanding common stock of Pillsbury for $66 per share in cash, $3 higher than Grand Met's previous offer. Grand Met launched its initial bid, for $60 a share, on Oct. 4, when Pillsbury stock was trading at $39.
Stephen M. Cranes, an analyst with the Minneapolis brokerage firm Piper, Jaffray & Hopwood, said the court rulings forced Pillsbury to consent to a takeover. But, he said, Pillsbury probably extracted a higher price from Grand Met by agreeing not to appeal.
"They got a fair price and the thing is over with," Cranes said. "I think everybody wins."
Along with making Pillsbury flour, Green Giant vegetables, Haagen-Dazs ice cream, Van de Kamp's frozen entrees and other foods, Pillsbury owns the Burger King, Bennigan's and Steak & Ale restaurant chains. The company has 104,000 employees. During the fiscal year that ended May 31, the company had net income of $69 million on revenue of nearly $6.2 billion.
Grand Metropolitan is the world's largest liquor company and the maker of such brands as Smirnoff vodka, J&B Scotch and Bailey's Irish Cream. U.S. products and services under the Grand Met corporate umbrella also include Alpo pet foods and Pearle Vision Centers.
The agreement comes less than a month after another food industry giant, RJR Nabisco, agreed to a $25-billion buyout, the largest in U.S. corporate history.
Although some experts believe that consumers will ultimately be stuck paying the bill for such huge acquisitions, analysts reached late Sunday disagreed.
'Doesn't Hold Water'
"Consumers buy products because they like them and they are priced reasonably," said John C. Bierbusse, an analyst with A. G. Edwards & Sons in St. Louis. "The argument 'big is bad' just doesn't hold water."
As for what Grand Met will do with Pillsbury, Cranes said the British firm probably would have to sell part of it because of legal considerations. He predicted that Pillsbury's Steak & Ale and Bennigan's restaurant chains would be divested because of state laws barring companies from both producing liquor and selling it to consumers.
Cranes said, however, that Grand Met probably would keep the Burger King chain and restore it to health before trying to find a buyer.
He also said he saw no obstacles, legal or otherwise, preventing a Grand Met-Pillsbury deal from going through.
The companies put out a statement that the Pillsbury board determined that the terms of the offer and the merger were fair and in the best interests of Pillsbury stockholders. The board also recommended that Pillsbury stockholders accept the offer and tender their shares.
New Opportunities Seen
"Pillsbury is the perfect fit to enable Grand Metropolitan to achieve its strategy of becoming a world leader in foods and retailing, as well as the drinks sector," said Ian A. Martin, chief executive of Grand Met's U.S. operations. "The merger will greatly expand Grand Metropolitan's established presence in the huge U.S. marketplace, while enabling us to open new business opportunities for Pillsbury in global markets."
Philip L. Smith, chairman and chief executive officer of Pillsbury, said: "We are pleased that we have succeeded in protecting the interests of our shareholders, employees, franchisees and communities, and that we have reached a negotiated agreement that works to the advantage of everyone."