General Mills/Nestle Takeover Rumors Strike Again

An article from Bloomberg reported that shares of General Mills climbed to the highest level since June 2010 and options traders boosted bullish wagers on speculation that the maker of Cheerios cereal and Progresso soup may be acquired by Nestle SA. 

The shares climbed 0.8 percent to $38.21 as of 4 p.m. on April 26, 2011 in New York, while the most-active bullish options were May $39 calls, which accounted for almost half of all bullish trades. The shares have climbed 7.4 percent this year.
 

“The call volume isn’t massive, but it’s piqued some interest,” says Jamie Lissette, founder of the Hammerstone Group, an operator of online discussion forums for investors. “There’s been a lot consolidation in the food names recently, and people are thinking Nestle may come in and buy a large U.S. food company.”
 

Spokespeople for both General Mills and Nestle both declined to comment in the article.
 

Members of the media and financial analysts have mixed views about the deal, and most seem skeptical as there have been rumors of a possible merger between these two players before. In 2004, there was speculation that Nestle was after the 21.6 percent stake of General Mills held by Diageo at the time. Again in 2010, The Wall Street Journal called General Mills an “appetizing” target for Nestle, which just sold its 52 percent stake in eye-care company Alcon for $28.1 billion.

 

“The Nestle-for-General Mills chatter won’t fade away,” said Alec Levine, a strategist at Wallachbeth Capital LLC. “It’s been previously speculated that Nestle may be interested, and these options are a cheap way to play that possibility.”
 

A March 2010 article in The Motley Fool summed up the synergies between the two companies nicely, supporting the opinion that it would be a logical match.
 

It reported: “In a nutshell, General Mills' product portfolio is a near-perfect fit with Nestle's core growth drivers. Along the line of health and nutrition, General Mills has steadily improved the nutritional profile of its products during the past several years. Consumers are digging the advances -- Fiber One granola bars and Yoplait Light yogurt, to name just two examples, have recently posted double-digit sales growth. In emerging markets, the company has made strong inroads to China with its Wanchai Ferry brand.”

 

So will the rumors of a takeover ring true this time? Share your thoughts on the potential deal here.