Annie's products, ranging from mac and cheese to bunny-shaped cheddar snacks, are carried in more than 35,000 retail outlets in the U.S. and Canada. Bloomberg News
General Mills Inc. agreed to buy Annie's Inc. for $820 million, betting that a bigger presence in the natural-and-organic foods aisles will energize a business sapped by flagging consumption of breakfast cereals and other traditional fare.
The deal will add Annie's products ranging from macaroni and cheese to bunny-shaped cheddar snacks to General Mills' stable of well-known brands, which includes Cheerios and Chex cereals, Green Giant frozen vegetables, and Häagen-Dazs ice cream. It marks the latest effort by General Mills and other big food companies to tap into consumers' growing appetite for foods perceived as being made with more natural ingredients and fewer artificial additives.
General Mills, of Minneapolis, agreed to pay $46 a share in the all-cash deal, which both companies' boards have approved. That is a 37% premium to Annie's closing price Monday before the deal was announced. Annie's stock price quickly surged to around $46 in after-hours trading, while shares in General Mills rose just more than 1% in after-hours trading to $54.21.

Jeff Harmening, General Mills chief operating officer of U.S. retail, noted that sales of organic and natural foods, by contrast, have been growing at a 12% compound rate over the past 10 years. "Annie's competes in a number of attractive food categories, with particular strength in convenient meals and snacks—two of General Mills' priority platforms," he said.General Mills, like many traditional makers of packaged foods, has been struggling to grow sales in recent years, amid sluggish consumer spending and growing clout on pricing by big retailers. Cereal sales, in particular, have been falling as Americans instead choose items such as yogurt that are higher in protein and more convenient.
Annie's is tiny compared with General Mills, which reported $17.9 billion in revenue in its latest fiscal year. But the Berkeley, Calif.-based company has grown rapidly since it was founded in 1989, with sales growing 20% to $204 million in its latest fiscal year ended March 2014. Annie's 145-plus products are carried in more than 35,000 retail outlets in the U.S. and Canada.
General Mills has been making acquisitions to increase its portfolio of health foods for more than a decade. It acquired Small Planet Foods and its Cascadian Farm and Muir Glen organic food brands in January 2000. It bought the LARABAR line of fruit and nut-based snack bars in 2008, and the Food Should Taste Good line of savory snacks in 2012. General Mills has products in 14 categories of the natural and organic segment, which generated annual sales of about $330 million in fiscal 2014 for the company.
Other large food manufacturers have made similar move—including rival Kellogg Co. , which acquired natural and organic cereal maker Kashi in 2000. Campbell Soup Co.  in 2012 acquired juice maker Bolthouse Farms, while Hillshire Brands Co., which makes Jimmy dean sausage and Ball Park hot dogs, this year bought Van's Natural Foods before itself being acquired by Tyson Foods Inc
General Mills in June announced plans for a cost-cutting initiative aimed at reducing excess capacity and overhead, after revenue in its most recent quarter fell 2.9% from a year earlier to $4.28 billion. Other packaged-food companies have closed factories, sold off underperforming brands, and laid off staff to improve profitability.
General Mills also has taken other steps in recent years to meet consumer demand for foods perceived as more healthful. Its Chex brand was a forerunner in marketing cereals that don't contain gluten, a group of grains-based proteins that some people have difficulty digesting. And earlier this year, General Mills began making Cheerios free of ingredients made with genetically modified ingredients, or GMO-crops grown from bioengineered seeds—making it one of the biggest packaged food brands to make such a change.
Customers in this area can be especially demanding, however, as many are driven to natural and organic foods in part by a deep suspicion of how the established food industry operates.
In an interview with The Wall Street Journal last year, Annie's Chief Executive John Foraker commented on the possibility that Annie's could get acquired by a large food company and the possible backlash that could come from consumers if a larger food manufacturer with different values were to buy it.
"Big companies that own natural, organic companies…that have started to use genetically modified ingredients and other things that are very controversial with their core audience have experienced issues," Mr. Foraker said. "I don't want to talk prospectively about what could happen to Annie's, but I would say that there is a core consumer that is increasingly focused on transparency, quality, and wants to make sure that the companies that they support are staying true to the values that they profess in their packaging and their brand position."
General Mills intends to fund the acquisition through available credit. It said it plans to launch a tender offer within 10 business days to purchase all shares outstanding of Annie's. The transaction is expected to close later this year, and General Mills expects it to add to its earnings in the first 12 months following completion.