Ferrero’s Kellogg swoop may be sweeter for target

WK Kellogg Co

10/07/2025 15:35

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Aimee  Donnellan

DUBLIN, July 10 (Reuters Breakingviews) - Ferrero has added another item to its junk food empire. On Thursday the Italian maker of Nutella spread scooped up WK Kellogg KLG.N for $3.1 billion including debt, adding to a blizzard of U.S. M&A that since 2018 has taken in Nestlé’s confectionery business and Blue Bunny ice cream maker Wells Enterprises. The seller, which split from Pringles and Pop-Tarts maker Kellanova in 2023 and mostly sells cereals to North American consumers, looks to have got the tastier end of the deal.

On the face of it, privately held and family-controlled Ferrero seems to be setting up an edible equivalent of the “bad banks” that warehoused the non-performing loans of ropey European banking systems after the 2008 global financial crisis. After all, its new acquisition looks pretty unappetising. In the first quarter of 2025, WK Kellogg’s operating profit plummeted to just $20 million, less than half what it was in the same period last year, and its top line is set to shrink in the next few years. Prior to soaring 30% on Thursday in line with Ferrero’s offered premium, WK Kellogg shares had been bumping along no higher than when it went public in autumn 2023.

Several things are afoot. One is that cash-strapped shoppers have discovered cheaper supermarket alternatives. GLP-1 weight-loss drugs are seeing users cut down on their intake of unhealthy foods. And some governments are cracking down: in the UK new regulations will from October restrict unhealthy foods, including sugary cereals, from being advertised before 9 p.m.

In theory, there’s logic in meshing all this sugar together. Scale brings lower unit costs, meaning Ferrero has more chance of fending off low-priced alternatives. And its deeper pockets mean it can invest more in marketing and innovation to jazz up ageing WK Kellogg cereal brands like Froot Loops and Corn Flakes.

Even so, the financials of the deal don’t look that sweet. Analysts polled by LSEG expect WK Kellogg to make $177 million of operating profit this year. Taxed at 18%, the return on invested capital is less than 5%, south of the business’s 8% cost of capital as estimated by Morningstar. Worse, Ferrero isn’t assuming much in the way of synergies that could sweeten the return.

WK Kellogg, in contrast, gets more cash to reinvigorate itself away from the scrutiny of public markets. Its shareholders get taken out at a notable premium to where their stock has traded as a separate company. Ferrero, by contrast, may wind up with the sort of indigestion that accompanies putting Nutella on one’s Corn Flakes.

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CONTEXT NEWS

Ferrero Group announced the purchase of WK Kellogg on July 10 in a deal worth around $3.1 billion.

Ferrero has offered WK Kellogg’s shareholders $23 per share, representing a 31% premium to the stock’s close on Wednesday.

Late on July 9, a source told Reuters that the candy maker behind Nutella was nearing a deal to buy WK Kellogg, sending shares of the U.S. cereal owner surging in extended trading.

Shares of WK Kellogg were trading at $22.8 as of 1411 GMT on July 10, up 30.3%.

WK Kellogg’s revenue was set to decline before its Ferrero deal https://www.reuters.com/graphics/BRV-BRV/lgvdalkjapo/chart.png

(Editing by George Hay; Production by Oliver Taslic)

((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))