General Mills plans debt, Goldman bridge facility to buy Blue Buffalo

By Devika Patel

Knoxville, Tenn., Feb. 23 – General Mills, Inc. will use a combination of debt, including a committed bridge facility from Goldman Sachs & Co., cash on hand and equity for its $8 billion acquisition of Blue Buffalo Pet Products, Inc. at $40 per share in cash.

“We are planning to finance the transaction with a combination of debt, cash on hand and equity,” chief financial officer Don Mulligan said on the company’s conference call announcing the transaction on Friday.

“We have a committed bridge facility in place with Goldman Sachs and expect to put permanent financing in place before closing,” he said.

The company’s leverage level is expected to rise to about 4.2x, but the company will prioritize reaching a leverage target of about 3.5x by the end of fiscal 2020.

“Following completion of the transaction, General Mills’ pro forma net debt-to-EBITDA ratio is expected to be approximately 4.2x and we’re committed to maintaining a strong investment grade credit rating and expect to de-lever to approximately 3.5x by the end of fiscal 2020,” Mulligan said.

On Friday, Moody's Investors Service downgraded General Mills’ senior unsecured debt ratings two notches to Baa2 from A3, and S&P lowered the company’s corporate credit rating and long-term senior unsecured debt to BBB from BBB+, saying it believes “General Mills’ pro forma credit protection measures will deteriorate following this acquisition and will remain weaker than our prior expectations for several years after the close of the transaction.”

Moody’s said its two-notch rating downgrade reflects the significant increase in financial leverage that will result from the mostly debt-financed acquisition of Blue Buffalo.

Mulligan said hitting its leverage target is a priority for General Mills.

“We will be suspending our share repurchase program while we prioritize achieving our leverage target,” he said.

The transaction is expected to close by the end of General Mills' fiscal 2018.

The maker of consumer food products is based in Minneapolis.

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