Higher Bid For Blue Buffalo Pet Products 'Unlikely,' Says Imperial Capital

Blue Buffalo Pet Products Inc BUFF investors hoping for a superior offer above General Mills, Inc. GIS' $40-per-share buyout price may want to reconsider their thesis, according to Imperial Capital.

The Analyst

Imperial Capital's George Kelly downgraded Blue Buffalo Pet Products' stock rating from Outperform to In-Line with a price target increase from $30 to $40.

The Thesis

Blue Buffalo reported above-consensus fourth-quarter results in conjunction with the acquisition announcement, Kelly said in the downgrade note. But the agreement to sell to General Mills has been approved by a group of shareholders who own more than 50 percent of Blue Buffalo's stock, and the transaction is expected to close by the end of 2018.

General Mills' $40-per-share or $8-billion acquisition offer represents a premium valuation multiple at 25x last-twelve-months  or 22x including synergy expectations, the analyst said. Other public pet transactions ranged from 13x EBITDA TO 18X EBITDA.

The pet food company is "unlikely" to be offered a higher bid, so the analyst's revised price target is consistent with Friday's closing price — and the price tag on the deal of $40 per share.

Price Action

Shares of Blue Buffalo Pet Products were trading flat down 0.10 percent midday Tuesday and General Mills' stock was down 2.38 percent after losing more than 3.5 percent Friday.

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