Pillsbury Suitor’s Worldwide Plan
In launching a $5.2-billion takeover of Pillsbury, a British conglomerate is after a bagful of brand names, including Burger King and Green Giant, that it can sell overseas in a big way, executives said Tuesday.
“Pillsbury brand names are very strong and very capable of being emigrated on an international basis,” said Paul S. Walsh, chief financial officer of the U.S. subsidiary of London-based Grand Metropolitan. “We also think that of Burger King.”
By increasing the sales abroad of such staples as cans of Green Giant corn, pints of Haagen-Dazs ice cream and batches of Burger King Whoppers, Grand Met said it hopes to boost the fortunes of ailing Pillsbury. For $60 per share, Grand Met would get a long-sought stronghold in the international food business.
Grand Metropolitan--the world’s largest liquor company and maker of such brands as Smirnoff vodka, J&B; Scotch and Bailey’s Irish Cream--said it also plans to keep Pillsbury’s troubled Burger King division but would sell several of its restaurant chains, including Bennigan’s. Analysts have blamed the restaurant division for the poor financial performance that triggered a management shake-up.
Pillsbury management moved quickly to respond. Company officials said they were seeking court orders in 13 states to block Grand Met from buying Pillsbury shares.
Investors, meanwhile, reacted enthusiastically, and analysts indicated that the hefty $60-a-share offer may be hard for Pillsbury’s board to resist.
On the New York Stock Exchange, Pillsbury shares shot up $18 to close at $57. The stock was also the most active, with 12.8 million shares changing hands. The takeover focused attention on other food company stocks as well. Quaker Oats rose $1.50 to $55.50; General Mills gained 87.5 cents to $52; CPC International was up 87.5 cents to $51.625, and Kellogg Co. was up $1.375 to $62.375.
“It’s an aggressive bid,” said industry analyst Lee Tawes at Oppenheimer, a brokerage. “It suggests that Grand Met would like to sew up this transaction as quickly as possible.”
In a letter to Pillsbury Chairman Philip L. Smith, the head of Grand Metropolitan’s U.S. subsidiary, Ian A. Martin, said that the combined companies “will create an organization with the potential to be a worldwide leader in the manufacture and sale of branded foods. We anticipate that Pillsbury, upon consummation of our proposed transaction, will be the cornerstone of these worldwide efforts.”
Martin, who was in Minneapolis Tuesday trying to meet with Pillsbury officials, also said that Metropolitan wanted Pillsbury to set aside its takeover defenses.
In response, Pillsbury Chairman Smith said in a statement that the company would evaluate Grand Metropolitan’s offer. “We will not permit Grand Met’s unilateral action to force us to do anything that will harm our shareholders’ investment or do damage to our company,” said Smith.
Selling Some Restaurants
Pillsbury also filed suit in 13 states charging that Grand Metropolitan would violate state laws prohibiting a liquor manufacturer from owning retail outlets where liquor is sold. Such laws would prohibit a liquor maker such as Grand Met from owning Pillbury’s restaurants that serve liquor. Pillsbury said state courts in Texas, Oklahoma, New Mexico, Michigan, Kansas, Pennsylvania and Missouri had issued temporary restraining orders preventing Grand Metropolitan from acquiring any Pillsbury stock.
In a filing with the Securities and Exchange Commission, Grand Metropolitan said it planned to sell Pillsbury’s restaurant chains--such as Steak & Ale and Bennigan’s--that serve liquor. The company would also sell a Pillsbury subsidiary that serves as an in-house distribution company for Burger King outlets.
Grand Met, under Chairman Allen Sheppard, said its bid for Pillsbury fits into its strategy of focusing on the liquor, food and retail industry. The company, which relies on liquor sales for 51% of its $10 billion in annual revenues, owns a chain of 1,500 pubs in Britain, the 1,400-store Pearle Vision Centers and makes Alpo pet food products. Last week, the company announced the sale of its Inter-Continental hotel chain to Seibu Saison Group of Japan for $2.27 billion in cash.
Analysts said other makers of alcoholic beverages have been buying into other businesses as sales of alcoholic beverages worldwide slow.
The packaged-foods business “is very stable and a strong cash flow generator,” said analyst Marvin Roffman, at Janney Montgomery Scott. And Pillsbury has “an incredibly strong consumer franchise.”
Although Pillsbury products and Burger King stores are already found abroad, Walsh said there remains room for substantial growth. Grand Metropolitan is counting on Pillsbury’s well-known brand name products--such as Green Giant vegetables, Pillsbury frozen doughs and Haagen-Dazs ice cream--to attract consumers overseas.
The company also wants to exploit Pillsbury’s expertise in microwave food products to meet the growing demand for such foods in Britain and Japan. “Many of Pillsbury’s microwave products are capable of international expansion--that would certainly be our mission,” Walsh said.
Walsh said Grand Metropolitan can supply the market muscle that Pillsbury officials need to properly promote Pillsbury products and Burger King. “We are not sure that they are investing enough into their brands,” he said.
Drop in Earnings
Grand Metropolitan would also look at spending more on marketing, as well as operations, at the 5,000-store Burger King chain. “Many people prefer (Burger King’s) flamed broiled burger to McDonalds’ (hamburger),” Walsh said. “But there has been some poor quality control, and we are convinced of the need to put more behind marketing.”
The takeover bid comes as Pillsbury, which saw earnings decline in 1987 for the first time in 16 years, has taken steps to solve its problems, analysts say. The company revamped the top management at Burger King and sold off its Godfather’s Pizza chain and other restaurant units. In July, a few months after John Stafford resigned under pressure as chairman, Pillsbury hired Smith to succeed him.
But the company has not moved fast enough to please Wall Street. “With their new president, they were getting closer to taking care of their problems,” said Nomi Ghez, a food industry analyst at Goldman Sachs. “But it took them quite a while to to bring in a new CEO, and the world can not sit around and wait.”
