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UVA-OB-0891
The Breakfast of Champions: Can General Mills Make the Dough With Pillsbury? (B)

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 UVA-OB-0891

THE BREAKFAST OF CHAMPIONS:

CAN GENERAL MILLS MAKE THE DOUGH WITH PILLSBURY? (B)

After General Mills executives announced its intention to acquire the Pillsbury subsidiary
from Diageo PLC in July 2000, senior executives outlined several long-term goals for the decade
that December:1

• Gain 7% to 8% compound annual sales growth

• Generate $500 million in pretax cost savings through productivity enhancements
• Sustain double-digit earnings per share growth

More than a year later, in the fall of 2001, the effective date of the merger, the deal was
expected to generate revenue enhancements through product innovation, channel expansion,
international expansion, and productivity gains. The acquisition was expected to yield cost
savings through supply chain improvements, sales and marketing rationalization, and
administrative cost reduction.

The difficulty with which firms actually achieve expected synergies post-integration was
certainly illustrated with the General Mills and Pillsbury purchase deal. After almost a decade of
struggling to deliver a solid quarter with the combined company, General Mills finally made a
recovery. By early 2007, it seemed that the realization of synergies between General Mills and
Pillsbury were achieved and the company was back in business.

Taking Inventory

As General Mills’ vice president and chief learning officer, Kevin Wilde was part of the
transition team responsible for helping the postacquisition integration go smoothly. With the
Pillsbury purchase, the 11,000-employee General Mills organization grew to become a work

1
General Mills Inc. History, Business and Company Resource Center.

This case was written from public information by Senior Case Writer Gerry Yemen and Assistant Professor of
Business Administration Ryan Quinn. It was written as a basis for class discussion rather than to illustrate effective
or ineffective handling of an administrative situation. Copyright © 2007 by the University of Virginia Darden
School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a
spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or
otherwise—without the permission of the Darden School Foundation. ◊
 -2- UVA-OB-0891

force of approximately 29,850 people. That figure included an international work force that grew
from 1,000 to approximately 7,500 postmerger.2

High among Wilde’s concerns was the potential loss of key talent.3 In an effort to give
everyone a stake in the combined company’s future, all employees were awarded stock option
grants shortly after the acquisition. According to Wilde, General Mills legacy employees tended
to be longer tenured than Pillsbury legacy employees. Armed with that information, the
transition team chose two key objectives for the integration process. First was a desire to ensure
the continuation of the high level of commitment that General Mills employees had to the
organization, and second was to foster that same high level of commitment among former
Pillsbury employees and new, postacquisition employees.4

Wilde’s team chose a three-part strategy to integrate the two organizations:5

• Leverage vital human resource systems such as rewards, performance management, and
individual development while eliminating overlapping structures.
• Build upon transitions already accomplished during implementation of those key systems
(introducing changes at a reasonable rate and being mindful of employee anxieties).
• Use information from the General Mills Climate Surveys to monitor employee reaction
and assess effectiveness of transition initiatives.6

Stocking Shelves

The initial focus of the integration was to effectively communicate acquisition objectives,
create a new organizational structure, staff the combined organization with existing talent from
Pillsbury and General Mills, consolidate overlapping human resource policies and programs into
one, support employees from both firms transitioning to new jobs, retain critical employees, and
assist displaced employees.7

Wilde’s team believed that addressing workers’ concerns about whether they had a job in
the new organization was important. Within seven months, several plant consolidations were in
motion, key business systems and processes were integrated, and fundamental functions such as
marketing, sales, supply chain management, client invoicing, and support services were
combined.8 As a result of careful planning, all payroll, compensation, and benefit packages were

2
Kevin D. Wilde, “HR Systems Drive Successful Postacquisition Integration at General Mills,” Journal of
Organizational Excellence (Spring 2004): 18.
3
Wilde, 31.
4
Wilde, 19–20.
5
Wilde 20–21.
6
The employee Climate Survey was conducted among all General Mills employees every two years. During
alternate years, Pulse surveys based on a sample size of company employees were carried out.
7
Wilde, 21.
8
Wilde, 25.
 -3- UVA-OB-0891

the same between former Pillsbury and General Mills U.S. employees.9 Merging functions meant
several employees had new bosses, many were relocated, and selected manufacturing plants were
closed (Exhibit 1).

In January 2002, Wilde’s team launched a human resource initiative, the Performance
Management Process (PMP). The process was meant to help employees of the new organization
understand business objectives and set out criteria for individual job performance, provide an
assessment of their performance, and link their results to rewards.10 The idea was to help
employees understand what would be expected from them and the rewards that awaited best
performance.

A few months later, in early fiscal year 2003, Wilde’s team introduced the Individual
Development Plan (IDP). This tool provided data and feedback to each employee with the goal
of improving their performance through personalized professional development planning. Wilde
believed this process encouraged employees to shape their own futures within the new
organization.11

One year after General Mills purchased Pillsbury, employee turnover for the combined
organization was 5.4% according to Wilde.12 This figure was much lower than General Mills’
average turnover of 9.9% and Pillsbury’s 17.8% between the years 1995 and 2001. Wilde’s team
was proud of that accomplishment (Exhibit 2).

A Shelf with Some Problems

Yet even with the careful attention to the postmerger integration process, General Mills
struggled with numerous issues. For example, after surpassing Kellogg as the leading ready-to-
eat cereal maker in the United States in November 1999, General Mills slid to second place by
July 2002. That was a troubling development that prompted Stephen Sanger, CEO of General
Mills, to remark, “It’s obvious that the focus on integration has taken a toll on our sales growth
and our earnings growth.”13

For a couple years, it seemed like General Mills had given up on new products. Product
innovation and sales growth diminished. Looking back, Wilde wished they had planned to keep
product innovation going during integration so as to not lose ground in product development.14
The focus shifted from new products and promotions to integrating the two companies’ sales and
marketing forces.15 Even though retention rates were higher than expected, the Pillsbury sales
team lost several employees and as Rick Bozzelli, a manager at SuperValu Inc., observed,
9
Wilde, 26.
10
Wilde, 21.
11
Wilde, 26.
12
Wilde, 31.
13
Julie Forster, “General Malaise at General Mills,” BusinessWeek (1 July 2002): 68.
14
Wilde, 33.
15
Forster, 68.
 -4- UVA-OB-0891

“When you ask a General Mills salesperson about a Pillsbury product, their eyes glaze over.”16
Pillsbury struggled to know how to get things done. To further distract chief executives, the SEC
launched an investigation into the company’s sales and accounting practices in 2003.17

In contrast to its shopping spree of the 1990s and early years of 2000, General Mills
almost halted its acquisition strategy (Exhibit 3). Indeed, in 2004, General Mills sold its share in
U.S. company Haagen-Dazs and a year later, its stake in Snack Ventures Europe to PepsiCo for
$750 million. That same year, the company sold Lloyd’s barbecue business and Diageo sold two-
thirds of its 20% stake in General Mills. The biggest news came during the summer of 2005
when General Mills converted its entire Big G cereal lineup to whole grain.

Lucky Charms Fill the Shelves

After seemingly struggling through most of the decade, by 2006, the organization, some
analysts believed, had finally stabilized and consolidated the Pillsbury and General Mills
companies.18 Many in the industry believed there was a return to what Sanger referred to as the
company’s “core model of growth” (described as organic growth, marketing, and innovation)
instead of growth through acquisition.19 There were, however, some skeptical analysts who
doubted the return of innovation and believed the company remained more reactive to consumer
likes than ground breaking.20

With a return to earnings per share above analysts’ forecasts in F2Q07, a repaired balance
sheet, higher gross margins, and increased operating profit margins, the state of General Mills in
January 2007 meant most lenders should have been happy to do business with the combined
company (Exhibit 4). Weaving these two large organizations together and managing the merger
process was no small feat.

16
Forster, 68.
17
In 2005, the government terminated the investigation with no action against General Mills.
18
Eric Katzman, Christina McGlone, and Grechen Olson, “General Mills: Keeping the Grinch Away,”
Deutsche Bank Company Bulletin, 21 December 2006.
19
General Mills, Inc. Analyst Report, Stifel Nicolaus, 21 December 2006: 1.
20
David Nelson, Robert Moskow, and Pi Aquino, General Mills Analyst Report, Credit Suisse,
21 December 2006; Eric Katzman et al.
 -5- UVA-OB-0891

Exhibit 1
THE BREAKFAST OF CHAMPIONS:
CAN GENERAL MILLS MAKE THE DOUGH WITH PILLSBURY? (B)
Plant Closings

Plant Location # of Employees Year Closed

Pillsbury Hillsdale, Michigan 120 2002
General Mills Golden Valley, Minnesota - 2002
Pillsbury Geneva, Illinois 119 2002
Pillsbury Eden Prairie, Minnesota 323 2002
Pillsbury DeKalb County, Georgia 215 2003
General Mills Iowa City, Iowa 83 2004

Source: Case writer–generated from various news media.

 -6- UVA-OB-0891

Exhibit 2
THE BREAKFAST OF CHAMPIONS:
CAN GENERAL MILLS MAKE THE DOUGH WITH PILLSBURY? (B)
Number of Employees, 1999 to 2006

Year Number of Employees

1999 10,660
2000 11,077
2001 11,001
2002 29,859
2003 27,300
2004 27,580
2005 27,800
2006 28,100
Source: Hoover’s Company Report.
 -7- UVA-OB-0891

Exhibit 3
THE BREAKFAST OF CHAMPIONS:
CAN GENERAL MILLS MAKE THE DOUGH WITH PILLSBURY? (B)
General Mills Acquisitions, January 2000 to December 2006

Date Date Date Date

Announced Effective Target Name Acquirer Name Announced Effective Target Name Acquirer Name
1/24/2000 Talbots Inc. Talbots Inc. 7/26/2002 Talbots Inc. Talbots Inc.
2/16/2000 2/18/2000 Kerry Group PLC-DCA Bakery Pillsbury Bakeries,
Bus Foodservice 10/23/2002 General Mills Inc. General Mills Inc.
2/21/2000 General Mills Inc. General Mills Inc. 11/5/2002 1/31/2004 Talbots Inc. Talbots Inc.
Avado Brands-Restaurants (3),
5/30/2000 12/31/2000 Talbots Inc. Talbots Inc. 3/10/2003 3/10/2003 GA Darden Restaurants Inc.
7/17/2000 10/31/2001 Pillsbury Co (Diageo PLC) General Mills Inc. 7/24/2003 7/24/2003 Haagen-Dazs Taiwan Ltd. General Mills Inc.
8/30/2000 8/30/2000 King Henry’s Feast Bld, Orlando Darden Restaurants Inc. 8/1/2003 8/1/2003 Chevy’s-Rio Bravo Restaurants Darden Restaurants Inc.
12/20/2000 La-Van Hawkins-Burger King Burger King Corp. 3/9/2004 Talbots Inc. Talbots Inc.
3/14/2001 Talbots Inc. Talbots Inc. 8/17/2004 Talbots Inc. Talbots Inc.
6/8/2001 6/8/2001 Tom Rogers Distributors Inc. Ice Cream Partners USA LLC 9/28/2004 Darden Restaurants Inc. Darden Restaurants Inc.
9/26/2001 9/26/2001 Rock Island Foods Inc. Ice Cream Partners USA LLC 11/18/2004 11/18/2004 Star Foods Snack Ventures Europe
10/16/2001 Talbots Inc. Talbots Inc. 4/21/2005 Talbots Inc. Talbots Inc.
10/18/2001 10/18/2001 Nath Franchise Group-Rest (30) Burger King Corp. 8/31/2005 American Market Corp. Estrella AB
10/31/2001 11/1/2001 General Mills Inc. General Mills Inc. 2/6/2006 5/1/2006 J. Jill Group Inc. Talbots Inc.
Cereal Partners
11/6/2001 Godrej Pillsbury Ltd. Pillsbury Co. (General Mills) 5/23/2006 7/14/2006 Uncle Tobys Pty Ltd. Worldwide SA
1/16/2002 5/17/2002 Quality Dining Inc-Grady’s Darden Restaurants Inc. 10/4/2006 Saxby Brothers Ltd.. General Mills UK Ltd.
7/22/2002 7/22/2002 Cimms Restaurant-VA (20) Burger King Corp.

Source: SDC Platinum, Custom Report (case writer–generated).

 -8- UVA-OB-0891

Exhibit 4
THE BREAKFAST OF CHAMPIONS:
CAN GENERAL MILLS MAKE THE DOUGH WITH PILLSBURY? (B)
General Mills Forecast and EPS, Q1 2001 to Q3 2006

General Mills Forecast and EPS

3.5
3
Earnings Per Share

2.5
2
1.5
1
0.5
0
01

01

02

02

03

03

04

04

05

05

06

06
20

20

20

20

20

20

20

20

20

20

20

20
1

3
Q

Forecast EPS
 -9- UVA-OB-0891

Exhibit 4 (continued)

Share Price Performance General Mills, November 1999 to December 2006

Effective
10/2001

General Mills

70

60

50

40

30

20
Announce
10 7/2000

0
99 /0
0
/0
0
/0
1
/0
1 /0
1
/0
2 /0
2
/0
3
/0
3
/0
4
/0
4 /0
4
/0
5
/0
5
/0
6
/0
6
0/ 30 30 28 30 2/30 30 0/30 30 30 30 30 1/30 30 30 28 30
/3 / / / / / / / / / / / / /
11 4 9 2 7 1 5 1 3 8 1 6 1 4 9 2 7

Source: FinanceYahoo.com http://finance.yahoo.com/q/hp?s=GIS (accessed 16 January 2007).

 -10- UVA-OB-0891

Exhibit 4 (continued)

Percentage of Actual Net Sales and Operating Profit per Segment, 2004–06

Percentage of Net Sales

(Year End May)
2004 2005 2006
U.S. Retail 70% 69% 69%
Bakeries and Food Service 16% 16% 15%
International 14% 15% 16%
Total Segment Net Sales 100% 100% 100%

Percentage of Operating Profit

(Year End May)
2004 2005 2006
U.S. Retail 88% 85% 84%
Bakeries and Food Service 6% 7% 7%
International 6% 8% 9%
Total Segment Net Sales 100% 100% 100%

Source: General Mills Annual Report, 2006.

 -11- UVA-OB-0891

Exhibit 4 (continued)

Direct Competitors Comparison, December 2006

General Mills Kellogg Co. Kraft Foods Inc. Industry

Market Cap 19.55 B 19.96 B 58.06 B 361.50 M
Employees 28,100 25,600 94,000 1.23 K
Qtrly Rev Growth 5.30% 7.60% 2.30% 8.30%
Revenue 12 B 10.72 B 34.65 B 556.59 M
Gross Margin 40.17% 44.84% 36.22% 28.89%
EBITDA 2.60 B 2.22 B 6.30 B 40.79 M
Operating Profit Margin 17.11% 16.99% 15.66% 7.07%
Net Income 1.12 B 1.01 B 3.21 B 12.90 M
EPS 3.092 2.518 1.93 0.062
P/E 18.32 19.9 18.3 22.86
Source: Hoover’s Company Reports
http://premium.hoovers.com/subscribe/co/fin/history.xhtml?ID=ffffrfjysffjthfkcf (accessed 16 January 2007).