Most executives keep a wish list of competitors they would like to acquire. At cereal giant General Mills Inc. (GIS ), one name--Pillsbury Co.--had been near the top of the list "for about a hundred years," jokes CEO and Chairman Stephen W. Sanger.
Pillsbury, with its range of convenience foods, broad national distribution, and worldwide presence, not to mention a headquarters on the other side of Minneapolis, seemed a natural match. So when Paul S. Walsh, then chief operating officer of Pillsbury parent Diageo PLC, called last March to see if General Mills was interested in a merger, Sanger didn't hesitate. Did he want to meet for dinner? Are Cheerios round? Of course he did. "What motivated us was the belief that the companies would grow faster together than either would alone," says Sanger. "We didn't see a dozen combinations that would do that."
TUBULAR YOGURT. The $10.5 billion deal that Sanger agreed to in July will nearly double the size of General Mills, to roughly $13 billion in sales. And by pulling off one of the biggest mergers in the quickly consolidating food industry, Sanger has defined the task by which his nearly three-decade career at General Mills will be judged. Simply put: to integrate Pillsbury in a way that generates growth in a slow-growth business.
Sanger has little time to spare. Cereal sales have been declining since 1994; last year they were down 1.6%. By acquiring Pillsbury, he has with one stroke decreased General Mills' dependence on cereal from more than half of earnings to less than a third. Still, he'll have to find a way to sell more Wheaties, Cheerios, and Lucky Charms. And he'll probably have to strike some other deals, too. General Mills expects Federal Trade Commission approval of the Pillsbury merger any week now.
At first it might have seemed surprising that the 54-year-old Sanger, who made his name at General Mills as a savvy marketer, would turn out to be a bold dealmaker. Few would deny that he has a good feel for tastes and trends: Yoplait yogurt is now more popular than rival Dannon Co., in part because he correctly figured that kids would eat more if he put the yogurt in a tube. But some worried that the easygoing Sanger might not be tough enough to lead General Mills at a time when the whole food industry is slowing--and cereal most of all.
So far, though, Sanger has acted more decisively and with greater effect than many expected. Since he took over in May 1995, sales have increased 6% a year, compared with 2% to 3% for total retail food sales, according to U.S. Bancorp Piper Jaffray. General Mills has done as well as it has because of Sanger's inventive cost-cutting and his risky decision to raise prices and boost advertising during a damaging cereal price war in 1997. As a result, profit margins were fattened and General Mills was able to eat into its competitors' market share. In 1999, it even took over the top spot from longtime rival Kellogg Co. and now has 32.2% of the U.S. market. "He's proven to be a more well-rounded CEO than I anticipated," says Prudential Securities Inc. food analyst John M. McMillin. "Initially, I saw a great marketing man who had less interest in numbers and more interest in innovation."
PURPLE HORSESHOES. Sanger's rise through the ranks was propelled by his creativity and a knack for finessing seemingly trivial details into grand marketing plans and big gains for the company. When he was in charge of Lucky Charms in 1975, he followed a simple maxim: If consumers like something, give them more of it. In this case, Sanger added blue diamond-shaped marshmallows. When sales jumped 15%, he put in purple horseshoes. As head of the cereal division in 1988, he tweaked Cheerios. It's still General Mills' best-selling brand, mostly because he added new flavors such as apple cinnamon and honey nut.
Sanger got his first taste for marketing at DePauw University. As president of the student union board in the late 1960s, he started promoting Motown concerts on campus. "The main lesson I learned is that it's a lot easier to be a good marketer if you've got a good product," he says. "It was a lot easier to sell tickets to the Temptations than the Electric Prunes."
After graduating, he considered a career as a concert promoter or lawyer but decided against both. Instead, he got an MBA at the University of Michigan and then joined Procter & Gamble Co. as a brand manager. A few years later, in 1974, he beat out his boss for a job at General Mills managing Wheaties. Sanger's competitive spirit and marketing acumen were apparent early on, says H. Brewster Atwater Jr., the CEO and chairman from 1981 until 1995. "Steve was identified as someone with great potential," says Atwater. "He had interesting ideas about how to develop new products and get new business."
He also had some interesting ideas about how to manage the company. When he took over from the very reserved Atwater, Sanger quickly retired the General Mills uniform--a dark suit and white shirt--and closed the executive dining room. Then he changed the music on the company jet from classical to rock `n' roll and told employees not to work past noon on Fridays in the summer. The night before his first board meeting as chairman, he attended a Rolling Stones concert rather than stay home worrying. "I got a little inspiration from Mick Jagger, and the board meeting went great," he recalls. William T. Esrey, chairman and CEO of Sprint Corp. and a board member, says Sanger seems "relatively low-key," but soon "you realize that you're dealing with an extremely capable, extremely mature, confident guy in his own right."
Add quirky to that description, too. Early in his tenure as CEO, Sanger was looking to cut costs and figured production-line changes could be made more efficiently. So he sent technicians to the NASCAR races in North Carolina to watch the pit crews. The technicians applied those techniques and managed to cut the changeover time from five hours to 20 minutes.
ROAD FOOD. Colleagues say Sanger's demeanor encourages people to chance it. "If you're not failing, you're not doing enough," says Ian R. Friendly, president of the yogurt division. Sanger has set a good example: Eight years ago, he enthusiastically backed a new cereal that was sold as a snack, Fingos. It bombed. But he still thinks cereal can be more portable; he recently launched a cereal bar called Milk `n Cereal.
Indeed, these days Sanger is even more convinced of the need for such hyperconvenient products--food that "you can eat with one hand while driving," as he says. That's why buying Pillsbury made so much sense to him. The company has all kinds of food--from Totino's Pizza Rolls to Old El Paso dinners--that Sanger believes have real potential in that regard. "Our goal is to keep innovating the way we have with our own products," he says.
The merger also gives General Mills an entree into new businesses. The company can take advantage of Pillsbury's expertise in selling to restaurants, school cafeterias, and in vending machines. And it should benefit from Pillsbury's strong international presence. Sanger expects revenue growth to increase from 6% a year to 7%. But because General Mills is issuing new stock, earnings per share won't grow until 2005, and then only by one to two percentage points.
Meanwhile, Sanger has to get Americans to buy more cereal. He has a range of new products, many aimed at narrower markets. Harmony, a calcium-rich brand for women, is already on the shelves. A Web site that lets consumers create a cereal mix based on their health needs is being tested. Still, it will take a lot of niche products to improve General Mills' bottom line. So where does that leave Sanger? Perhaps reviewing his wish list of acquisitions.
By Julie Forster in Minneapolis