SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
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General Mills, Inc.
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On August 30, 2000, General Mills, Inc. provided a written communication to
members of General Mills management (with later distribution to employees via
General Mills' intracompany website) containing the following text:
PILLSBURY PRODUCES PROFIT, NOT LOSS
Media coverage of the General Mills' preliminary proxy filing has prompted
questions about Pillsbury's financial performance.
First, be assured that Pillsbury is a healthy business, with approximately
$533 million in earnings before interest, taxes and earnings from joint ventures
for its fiscal year ended June 30, 2000, as reported in the proxy. Second,
nothing has changed our original assessment of Pillsbury's business. We assessed
the Pillsbury business on the basis of operating earnings (earnings excluding
interest, non-cash amortization expense and unusual expenses), and their actual
results for the fiscal year ended June 30, 2000, are on target with our
expectations.
The media have reported Pillsbury's net loss of $141 million, which
represents their bottom line earnings, as follows (in millions):
Earnings before interest, taxes and earnings from joint ventures $ 533
Interest expense (700)
Income tax benefit 4
Earnings from joint ventures, net of income taxes 22
Reported Net Loss $ (141)
But several factors would change after the close. Here's how.
Pillsbury's present debt is unusually high, driven primarily by inter-company
debt owed to other Diageo affiliates. At closing, our acquisition agreement with
Diageo requires that debt level be reduced to $5.14 billion. That would be
$2.5 billion less debt than Pillsbury carries today. General Mills also expects
to carry this reduced debt at a lower interest rate than Diageo is currently
charging Pillsbury internally. We expect the combination of these two factors to
reduce Pillsbury's interest expense by an estimated $340 million when it becomes
part of THE NEW GENERAL MILLS. This change alone would push Pillsbury from a net
loss to a net profit.
Second, Pillsbury's reported earnings are being further reduced by a non-cash
charge of over $200 million for amortization of intangibles. This charge against
Pillsbury's earnings will be eliminated at closing, though the Pillsbury
acquisition will produce a similar amortization charge for General Mills.
Finally, Pillsbury had $63 million in unusual expenses related to restructuring
and integration costs that are not part of ongoing operating profits.
The net losses that were reported in the media reflect the level of interest and
amortization Pillsbury carries today. Pillsbury's profits and cash flows on an
operating basis have been consistently strong. It is an attractive addition to
the General Mills portfolio.
GENERAL MILLS FILES PRELIMINARY PROXY STATEMENT
General Mills filed its preliminary proxy with the U.S. Securities and Exchange
Commission on Aug. 22. It is now available on the SEC's Web site. To access the
filing, click here:
http://www.sec.gov/Archives/edgar/data/40704/0000912057-00-038709.txt
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MALINA PROFILES A SUCCESSFUL TRANSACTION
Dan Malina, Vice President, Corporate Development, presented a comprehensive
overview of the Pillsbury proposed acquisition to the General Mills Leadership
Team on Wednesday, Aug. 23. Here's a recap for those of you who were unable to
attend.
STRATEGIC RATIONALE IS CLEAR
The strategic rationale for General Mills' acquisition of Pillsbury is clear.
"The vast majority of Pillsbury's revenue base is on trend," explains Malina.
"Pillsbury has strong positions in faster growing categories, allowing us to
improve our convenience profile. The Foodservice products and distribution
strength gives us a strong profile for rapid growth in that channel. Pillsbury
also has a great international business with a strong infrastructure that plays
in markets in which we'd like to grow the traditional General Mills businesses
as well."
Pillsbury's proprietary refrigerated dough products accounted for 60 percent of
its revenue in its most recent fiscal year, providing THE NEW GENERAL MILLS with
a significant new source of sales and profits. Pillsbury also offers consumers
portability and convenience. The company ranks number two in frozen breakfast
pastries and waffles. Totino's is number one in frozen hot snacks. And Pillsbury
extends our reach in ethnic markets with Old El Paso, number one in Mexican
dinner kits and shells, and potentially with Progresso, ranked number two in
ready-to-serve soup.
Combining Pillsbury's businesses with General Mills' will also drive synergies
in refrigerated/dairy case distribution and center store sales and distribution.
"Our supply chain will be more efficient and we'll expand our marketing, R&D
innovation and expertise," Malina explains, "while the acquisition of
Pillsbury's International operations also gives us manufacturing, distribution
and sales infrastructure in a number of fast-growing global markets."
PRICE IS RIGHT
Malina points out that, of the largest transactions in 2000 (to date), two were
food deals while eight were in the technology sector. "At 10.8X EBITDA (earnings
before interest, tax, depreciation and amoritization), we feel we got a fair
price, and if our investment bankers were here, they would say the same," says
Malina, explaining that Philip Morris paid 13.7X EBITDA for Nabisco Holdings,
while Unilever paid 14.4X EBITDA for BestFoods.
INTEGRATION IS KEY
"Research indicates that two out of three mergers and acquisitions fail. The
difference between success and failure is in the speed of a well-executed
integration plan.
"Our first priority (must be) to deliver on our business plans this year,"
Malina says. "Beyond that, the leadership team - all of us - must be fully
committed to the plan.
"We must choose the right integration approach, an approach that keeps the focus
on meeting customer needs. We've got to look outside to find the best possible
solutions. That means using outside process management consultants, like
PriceWaterhouse, to develop solid strategies for success."
In seeking synergies, "We've got to align our resources and build meaningful
measures for improved performance."
EVERYONE PLAYS A CRITICAL ROLE
"Successful integrations are by and about people," Malina concludes. "Everyone
on this team has a critical role in determining the success of the integration.
Right now we're putting the integration plan in place. Be assured that speed is
absolutely critical. People will be given responsibility for tasks with
timeframes and milestones so that, when the deal closes, we hit the ground
running."
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IMPORTANT INFORMATION:
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General Mills filed a preliminary proxy statement on Schedule 14A with the
United States Securities and Exchange Commission (the "SEC") on August 22, 2000
in connection with two proposals relating to General Mills' proposed acquisition
of Pillsbury to be submitted to General Mills stockholders for approval.
STOCKHOLDERS OF GENERAL MILLS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT
WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION.
Investors and stockholders may obtain a free copy of the definitive proxy
statement when it becomes available at the SEC's website at www.sec.gov. General
Mills and its directors and executive officers may be deemed to be participants
in the solicitation of proxies to approve the proposals relating to the proposed
transaction. The preliminary proxy statement on Schedule 14A filed with the SEC
contains information on General Mills directors' and executive officers'
ownership of General Mills common stock.
The materials in this filing contain forward-looking statements based on
management's current expectations and assumptions. Such statements are subject
to certain risks and uncertainties that could cause actual results to differ. In
particular, our predictions about the Pillsbury acquisition could be affected by
regulatory and stockholder approvals; integration problems; failure to achieve
synergies; unanticipated liabilities; inexperience in new business lines; and
changes in the competitive environment. In addition, our future results also
could be affected by a variety of factors such as: competitive dynamics in the
U.S. ready-to-eat cereal market, including pricing and promotional spending
levels by competitors; the impact of competitive products and pricing; product
development; actions of competitors other than as described above; acquisitions
or dispositions of businesses or assets; changes in capital structure; changes
in laws and regulations, including changes in accounting standards; customer
demand; effectiveness of advertising and marketing spending or programs;
consumer perception of health-related issues; economic conditions, including
changes in inflation rates or interest rates; fluctuations in the cost and
availability of supply-chain resources; and foreign economic conditions,
including currency rate fluctuations. The company undertakes no obligation to
publicly revise any forward-looking statements to reflect future events or
circumstances.
