What happened

Shares of Blue Buffalo Pet Products Inc. (NASDAQ:BUFF) were climbing higher Friday after the all-natural pet food specialist agreed to be acquired by General Mills (NYSE:GIS). Blue Buffalo also reported fourth-quarter results that beat estimates. As a result, the stock was trading up 16.8% as of 11:49 a.m. EST.

So what 

The buyout was the big news. In a surprising move, General Mills, the parent of brands like Cheerios, Yoplait, and Annie's, will take over Blue Buffalo for $40 a share, representing an enterprise value of $8 billion. The move marks General Mills first foray into pet food since the 1960's and brings an end to Blue Buffalo's short-lived run on the public markets, during which the stock has increased 46% since its 2015 IPO. General Mills CEO Jeff Harmening noted Blue Buffalo's "leading position in the large and growing Wholesome Natural pet food category," as the food-maker searches for growth to complement its stagnating legacy brands.

A bulldog in a patch grass.

Image source: Blue Buffalo.

Billy Bishop, the CEO of Blue Buffalo, said General Mills will be a tremendous home for the brand and said there was a strong cultural fit between both companies. The transaction is expected to be accretive to General Mills' earnings by 2020.

Separately, Blue Buffalo posted strong fourth-quarter results with net sales up 14.2% to $337 million, topping estimates at $319.4 million, and adjusted earnings per share increased from $0.18 to $0.24, ahead of the consensus at $0.21.

Now what 

Blue Buffalo shares were trading just shy of the $40 mark Friday morning, indicating a high level of confidence that the deal will go through as negotiated. The $8 billion price tag signals a big bet from General Mills on the natural pet food market, but for Blue Buffalo shareholders, this may be the best outcome as the buyout comes at a rich valuation. The deal is expected to close by the end of General Mills' fiscal year in May 2018.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.