Snickers maker Mars explores acquisition of Kellanova, sources say

WK Kellogg Co

04/08/2024 21:29

(Adds more background and details on Mars and Kellanova)
    By Anirban Sen
       Aug 4 (Reuters) - Family-owned packaged food giant Mars,
whose candy brands include M&M's and Snickers, is exploring a
potential acquisition of Kellanova  K.N , maker of snacks such
as Cheez-It and Pringles, according to people familiar with the
matter. 
    A deal would be one of the biggest ever in the packaged food
sector, given Kellanova's market value of about $27 billion
including debt, and test the appetite of regulators to allow
consolidation in the sector. 
    Shares of Kellanova are up about 20% since it split from WK
Kellogg Co  KLG.N  last October, but are still trading at a
discount to some of its peers, such as Hershey  HSY.N  and
Mondelez International  MDLZ.O , making it a potential
acquisition target. 
    There is no certainty that Kellanova will pursue a deal with
Mars, the sources said. Another suitor could also approach
Kellanova, and it's possible that no deal with any party is
reached, the sources added, requesting anonymity because the
matter is confidential.
    Kellanova declined to comment, while spokespeople for Mars
did not immediately respond to requests for comment.
    Dealmaking in the packaged food sector has been robust as
companies seek scale to weather the impact of price inflation
and weight-loss drugs weighing on demand.
    Last year, J.M. Smucker  SJM.N  acquired Twinkies maker
Hostess Brands for $5.6 billion, in a deal that united two major
American snack makers. 
    But many of the deals have been smaller than the mega merger
between Heinz and Kraft clinched almost a decade ago, as U.S.
antitrust regulators have become more concerned about such
transactions leading to higher prices and fewer choices for
consumers.
    Food prices have risen 25% between 2019 and 2023, faster
than other consumer goods and services, according to recent
statistics from U.S. Department of Agriculture. 
    The Federal Trade Commission and the state of Colorado have
sued to block grocery store operator Kroger's  KR.N  $25 billion
proposed acquisition of Albertsons  ACI.N , citing concerns the
deal would hike prices for millions of Americans.
    A deal for Kellanova would be the biggest ever for Mars,
dwarfing its $9.1 billion takeover of veterinary hospital
operator VCA in 2017. 
    The McLean, Virginia-based company has been seeking to
diversify its business through acquisitions. It is owned by its
founder Frank C. Mars’ descendants and generates about $47
billion in annual sales. It operates under three divisions; Mars
Petcare, Mars Snacking, and Mars Food & Nutrition.
    Kellanova makes its products in 21 countries and markets
them in more than 180 countries. Its separation from WK Kellogg
last year left Kellanova with snacks, such as Pop-Tarts and Rice
Krispies Treats, frozen breakfast foods, such as Morningstar
Farms and Eggo, and an international cereal division.
    WK Kellogg, which has a market value of $1.5 billion, kept
the cereal business in North America, including Kellogg's, Froot
Loops, Frosted Flakes and Rice Krispies cereals, under a
licensing agreement it inked with Kellanova.
    Reuters reported in May that investment firm TOMS Capital
Investment Management had taken a stake in Kellanova and was
discussing with the company how it can improve shareholder
returns. The details of the discussions between TOMS and
Kellanova could not be learned. 

 (Reporting by Anirban Sen in New York; Additional reporting by
Abigail Summerville in New York; Editing by Diane Craft and
Daniel Wallis)
 ((mailto:Anirban.Sen@thomsonreuters.com; Twitter: @asenjourno;
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