Pringles would make a tasty M&A bite for Mars
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, Aug 5 (Reuters Breakingviews) -Mars may be bulking up in the junk-food aisle. The privately held owner of M&Ms is mulling a deal for rival Kellanova K.N. Stock markets are tumbling amid unemployment worries, consumers look shaky and weight-loss drugs threaten demand. Yet, the price for the company behind Cheez-It and Pringles looks plenty tasty.
Mars is considering bidding for Kellanova, according to a Reuters report on Sunday citing people familiar with the matter. The candy and pet-care company has about $50 billion in sales, analysts at TD Cowen estimate, and has been on a buying spree. In November, it put upscale brand Hotel Chocolat in its cart for $662 million. Adding Kellanova to the mix of Snickers and Kind bars makes strategic sense, filling the chocolate-heavy corporate snack bowl out with popular chips brands.
The financial logic can just about work, too. Assume Mars offers a 30% premium to Kellanova’s share price on Friday, and a deal would be worth $33 billion including net debt. When J.M. Smucker SJM.N announced its acquisition of Hostess Brands last year, it forecast profit-juicing cost savings equivalent to roughly 7% of the Twinkies maker’s 2022 revenue. Assuming the same here results in almost $1 billion in synergies. Taxed at Kellanova’s 22% rate and capitalized, that’s worth $7.5 billion, well above the $6.5 billion premium.
Such a deal would value Kellanova’s enterprise at under 15 times 2024 EBITDA — still a touch below where competitors Hershey HSY.N, Mondelez International MDLZ.O and PepsiCo PEP.O trade.
Still, all things considered, the timing may seem odd. Procter & Gamble PG.N, McDonald’s MCD.N and even Amazon.com AMZN.O have noted that shoppers are becoming much more discerning on price, pulling back from certain categories. On the heels of a weak jobs report, the S&P 500 Index .SPX fell nearly 3% on Monday. Anti-obesity drugs from the likes of Novo Nordisk NOVOb.CO and Eli Lilly LLY.N threaten consumption of empty-calorie treats.
Yet there are reasons to move now. For starters, Kellanova, which split from cereal company WK Kellogg KLG.N in October, has been rolling out more new products, like puff snack Mingles, and they’re accounting for a growing share of sales after years of supply chain woes. And if the market is getting tougher, bulking up to take a bigger piece of it is a textbook defense. Getting those boons for a tasty price makes this an obviously tempting snack.
Follow @jennifersaba on X
CONTEXT NEWS
Privately held consumer snack and pet food maker Mars is considering a deal for rival Kellanova, Reuters reported on Aug. 4, citing people familiar with the matter. Mars owns brands including M&Ms and Snickers candy.
Kellanova, the owner of Cheez-It and Pringles, separated from its North American cereal business, WK Kellogg, in October.
Kellanova valuation is cheap versus junk-food rivals https://reut.rs/46QgpON
Editing by Jonathan Guilford and Pranav Kiran
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
