Shares in Blue Buffalo Pet Products Inc (NASDAQ:BUFF) shot up over 17% in pre-market as it emerged that foodstuffs giant General Mills Inc (NYSE:GIS) would buy the company for about US$8bn in cash.
The US$40 a share offer for Blue Buffalo represents a whopping premium of over 17% to the group's closing share price on Thursday of around US$34.
It would mark General Mills' entry into the booming pet food industry and aid it to fend off competition in the packaged food sector.
The firm highlighted that the US$30bn US pet food market was generating consistent 3-4% growth and is highly attractive for retailers based on continued market growth, premiumisation and subscription-like purchase patterns that drive traffic and repeat purchases.
Blue Buffalo is the leader in the fastest-growing Wholesome Natural category with double-digit growth over each of the last three years, said General Mills.
Founded in 2002, Blue Buffalo is the fastest growing major pet food company making natural foods and treats for dogs and cats under the BLUE brand.
"The addition of BLUE to our family of well-loved brands provides General Mills with the leading position in the large and growing Wholesome Natural pet food category and represents a significant milestone as we reshape our portfolio to drive additional growth and value creation for our shareholders," said General Mills chairman and chief executive Jeff Harmening.
The acquisition will boost General Mills' net sales and profit margins and is expected to be neutral to the company's cash earnings per share in fiscal year 2019 and will add to earnings in fiscal year 2020.
General Mills shares closed Thursday up 0.86% to US$54.95.