General Mills’ Acquisition of Pillsbury from Diageo PLC 1. What are General Mills’ motives for this deal? Estimate the present value of the expected cost savings (synergies).
In the spring of 1998 General Mills began studying areas where they could add to the company and advanced a strategy of acquisition-driven growth. General Mills has several motives for pursuing a deal to acquire Pillsbury. Pillsbury was identified as an ideal target due to its ability to complement General Mills’ other existing businesses and Diageo’s readiness to sell. The potential acquisition of Pillsbury would create value for shareholders by “accelerated sales and earnings growth…..through product innovation, channel expansion, international …show more content…
If GM’s average daily share price for 20 days were $42.55 or more, then GM would receive payment of $642 million. The ‘claw-back’ affect is that when GM’s stock is 42.55, GM can reclaim (42.55-38=4.55*141million=641.55) of the escrow fund back. The closer the stock price is to 42.55, the more money that GM can claw back. The deal is attractive to GM, because they receive the additional payment required to make the deal profitable for them. The deal also beneficial to Diageo, because they own 33% of GM, so they will profit from share appreciation.
If GM’s average daily share price were $38 or less, Diageo would pay $0.45 million to GM. Diageo will benefit from this because it will only