General Mills to buy organic food producer Annie's for $820 million

(Reuters) - General Mills Inc GIS.N, the maker of Cheerios cereal and Betty Crocker cake mixes, said it would acquire organic food producer Annie's Inc BNNY.N for about $820 million to expand its presence in the fast-growing U.S. natural foods market.

General Mills’s offer of $46 per share in cash represents a premium of about 37.3 percent to Annie’s Inc’s Monday closing.

Annie’s shares were trading just shy of the offer price in after hours trade, while General Mills’s shares rose about 1.9 percent to $54.50.

Berkeley, California-based Annie’s Inc markets over 145 products and is present in more than 35,000 retail locations in the United States and Canada. It had net sales of $204 million in the year ended March 2014.

General Mills’s organic food business, which includes Cascadian Farm and healthy snacks makers Food Should Taste Good, had sales of about $330 million in the year ended May 2014. The company’s net sales was $17.9 billion in the year.

The company built the business, called Small Planet Foods, through a series of acquisitions.

Sales in the U.S. branded organic and natural foods industry has been growing at a 12 percent compound rate over the last decade, said Jeff Harmening, General Mills’s Chief Operating Officer of U.S. retail.

The transaction is expected to add to General Mill’s earnings in the first year following completion, excluding certain transaction related costs, the company said.

General Mills said it intends to fund the deal through available credit and expects the deal to close later this year.

General Mills's stock has risen 7.2 percent this year through Monday, outperforming the 5.5 percent rise in the U.S. S&P consumer staples index .SPCOMS. Annie's stock has lagged with a 22 percent decline in that same period.

Annie’s financial adviser is J.P. Morgan Securities LLC and its legal adviser is Proskauer Rose LLP.