A March 21 earnings conference call with investment analysts offered Harmening his first opportunity to publicly elaborate on the thinking behind the Blue Buffalo acquisition, first announced on Feb. 23. General Mills is acquiring Wilton, Connecticut-based Blue Buffalo Pet Products for about $8 million. Harmening said Blue Buffalo has annual sales of $1.3 billion, 25 percent EBITDA margins and a consistent history of double-digit growth in sales and profits.

The acquisition strengthens General Mills as a leading supplier of center-of-store products, he said.

Jeffrey Harmening, chairman and CEO of General Mills

“Blue Buffalo is a truly unique asset and an attractive category that is still in the early stages of transformation,” Harmening said. “At $30 billion in sales in the US pet food market, it’s one of the largest in the center store. It has generated consistent growth and strong profitability over many years with low private label exposure.

“These days, more and more pet owners – especially millennials – see their pets as another member of the family. This humanization of pets, combined with the growing consumer interest in more natural products, has driven a dramatic increase in what we call the wholesome natural pet food category.

“And this transformation is still in the early innings, with wholesome natural products still making up only 10 percent of total category volume, up from 5 percent five years ago. What’s most exciting to us is that Blue Buffalo is leading the category transformation. The Blue brand has the strongest brand equity in the category. We’re the clear No. 1 position in the wholesome natural pet food as well as the No. 1 overall pet brand in the e-commerce and pet mass channels. And Blue is still in the early stages of expanding into the broader food, drug and mass, or FDM channels, which represent fully half of pet food retail sales in the US.”

The Federal Trade Commission on March 19 granted early termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 for the transaction. The closing of the purchase remains subject to certain other conditions, General Mills said, with an expected closing date before the end of May.

William W. Bishop Jr., CEO of Blue Buffalo

When the transaction closes, William W. Bishop Jr., the current CEO of Blue Buffalo, will lead the pet operating segment for General Mills.

Over the last month, Harmening said he’s been asked by analysts and investors how General Mills will create value through the acquisitions.

“In many ways, pet food is not as new a category as some people think, and the value creation playbook will look similar to the one we used very successfully at Annie’s acquisition over the last three years,” he said. “Our industry-leading retail sales force, retail partnerships and sales capabilities will help increase the likelihood of success of Blue’s FDM expansion. We will also leverage our technical capabilities and extrusion and thermal processing to drive innovation across dry and wet pet food. We’ll utilize our sourcing expertise and distribution network to enhance Blue’s supply chain efficiency. We’ll look for ways to help the Blue Buffalo team nurture and grow this modern, authentic 21st century brand, and we’ll stay out of their way where they don’t need us.”

Harmening said General Mills will drive administrative synergies where appropriate, particularly around “back office and public company costs.” He repeated that the approach will be similar to how the Annie’s acquisition was handled, noting that sales of the Annie’s brand have doubled in three years.

He expressed confidence that “our shareholders will be very happy with this acquisition.”

“Over the past month, key leaders from my team and I have spent time in Wilton, Connecticut, with ‘the herd,’ as they call themselves,” Harmening said. “And Billy and his leadership team have visited our marketing, sales and R&D teams in Minneapolis. The more we get to know each other, the more we see how compatible our cultures are and how synergistic our capabilities are in a variety of functional areas. And we cannot wait to get moving on continuing to grow this terrific brand as part of the General Mills portfolio.”

Asked during the call about the integration plans, Harmening said “transition” is a more appropriate term than “integration.”

“Blue Buffalo is going to be a separate operating segment,” he said. “There will be some integration. And the synergies we have accounted for are actually quite low relative to other deals that we have done. And so, it will operate relatively independently, and we’ll help them on the sales side where we can. We’ll help them on the supply chain cost. But I can tell you, even over the last month since we’ve announced the deal and gotten to know their leadership team, they have a very strong leadership team. And I think their strong leadership team, not only Billy Bishop, but the rest of the team, combined with our capabilities – even in a month since we announced the acquisition, we feel more confident than we have ever before about our ability to execute against Blue Buffalo well.”