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Pillsbury deal imminent
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July 16, 2000: 7:01 p.m. ET
General Mills, Diageo expected to announce $10.5B food merger Monday
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NEW YORK (CNNfn) - A merger of food groups General Mills and Diageo PLC's Pillsbury is expected to be announced Monday, according to industry sources.
The board of Britain's Diageo (DEO: Research, Estimates) approved the $10.5 billion merger Friday and the board of General Mills (GIS: Research, Estimates) gave its approval over the weekend.
The two Minneapolis-based groups are planning a stock and cash deal valuing Pillsbury at $10.5 billion, which will give Diageo a 33 percent stake in a combined U.S.-based food group and the British group some $4.5 billion in cash, industry sources said.
 General Mills will also pay $600 million in "contingent value rights," according to The Wall Street Journal. The cash portion of the deal is likely to come in the form of Diageo assigning debt to General Mills, the paper said.
The deal is likely to lead to annual cost savings of around $400 million. And although both groups are heavily involved in cereal-based products there are no significant antitrust issues, which could break up the proposed marriage, the sources added.
The marriage of Diageo's U.S. unit Pillsbury with cereals maker General Mills would create the world's fifth largest food company with $12.8 billion in sales and continue a flurry of consolidation in a food industry that in the last two months has seen Philip Morris acquire Nabisco and Unilever Plc nab Bestfoods.
The combination between the cross-town rivals will strengthen General Mills and allow Diageo to focus on its UDV wines and spirits and Guinness beer divisions, whilst still gaining from its minority stake in a bigger and more profitable food company.
Diageo and General Mills are keen to sign a deal as soon as possible to thwart attempts by ketchup king H.J. Heinz Co. (HNZ: Research, Estimates) to break up the party by bidding for Pillsbury.
The pact would bring together Pillsbury's refrigerated Doughboy products, Haagen-Dazs ice-cream, Green Giant vegetables and Old El Paso Mexican food together with General Mills's Cheerios, Wheaties and other breakfast cereals, Yoplait and Colombo yogurts and Betty Crocker cake mixes.
Diageo is likely to use the cash for share buybacks or to reinforce its leadership of the global spirits market by bidding for parts of Seagram's drinks business such as Captain Morgan dark rum and Absolut vodka distribution. 
-- from staff and wire reports
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Diageo
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