Diageo To Sell Pillsbury Unit to GM

Monday, July 17th 2000, 12:00 am

By: News On 6

LONDON (AP) â€” British food and drinks conglomerate Diageo PLC is selling its U.S. food subsidiary Pillsbury, owner of the Green Giant frozen vegetable and Haagen-Dazs ice cream brands, to General Mills for $5.4 billion in stock.

General Mills will also assume $5.1 billion in debt as part of the deal, which will create the world's fifth-largest food company with expected annual revenues of $13 billion, the companies said Monday.

John McGrath, Diageo chief executive officer, said the combined Pillsbury-General Mills will become ``a major new force in the changing U.S. food industry.''

Several other deals have been announced already this year, including Philip Morris Cos.' purchase of Nabisco Holdings Corp. and Unilever's acquisition of Bestfoods.

General Mills offers such well-known brands as the Cheerios and Chex line of cereals, Betty Crocker and Bisquick cooking mixes and Yoplait and Columbo yogurt.

In a separate move, Diageo also plans to combine its spirits business, UDV, with the operations of its Guinness subsidiary in a cost-saving move. The move will put brands like Johnnie Walker, Guinness, Baileys and Smirnoff in the same house.

McGrath said the integration of Diageo's spirits business was expected to produce annual cost savings of some $195 million after five years. The integrated company is to focus on markets in the United States, Spain, Britain and Ireland, which already deliver 60 percent of Diageo's operating profits from alcohol sales.

UDV, which makes 16 of the world's top 100 spirits brands, employs about 17,000 people, while Guinness employs about 13,000.

The Pillsbury-General Mills deal has already been approved by both boards, though still needs to obtain shareholder and regulatory approval. Pillsbury and General Mills are both based in Minneapolis.

Diageo will receive about 141 million shares of General Mills stock in the transaction â€” about 33 percent of General Mills' shares outstanding.

The deal is based on the $38 average closing General Mills share price on the New York Stock Exchange over the past month. Shares of General Mills were trading down $2.313, or 6.4 percent, at $34 on the New York Stock Exchange early Monday.

U.S. shares of Diageo were up 62.5 cents to $36.438, also on the NYSE.

Speculation about Pillsbury's future rose after Diageo announced in June that it plans to sell part of its Burger King subsidiary. Burger King was formerly owned by Pillsbury, which in turn was acquired by Grand Metropolitan PLC in 1989. Grand Met merged with Guinness PLC in 1997 to form Diageo.

The deal is the latest to occur in a rapidly consolidating food industry. Last month, Philip Morris, which owns Kraft Foods, said it was buying Nabisco Holdings, the nation's No. 1 cookie and cracker maker, for $14.9 billion.

That came on the heels of an agreement by Anglo-Dutch conglomerate Unilever, owner of Lipton teas, Ragu sauces, Vaseline, and Pepsodent toothpaste, to purchase Bestfoods, the maker of Skippy peanut butter and Hellmann's mayonnaise for $20 billion.