Kellanova (K +8%) is seeing significant gains after agreeing to be acquired by Mars, Inc. in an all-cash deal valued at $83.50 per share. This represents a 12% premium from yesterday's close and a 33% premium from August 5, when Mars' interest was first reported. The acquisition, worth $35.9 billion, combines Kellanova's 2023 sales of over $13 billion with Mars' more than $50 billion in sales.
- Just last year, in October 2023, Kellogg split its snacking and cereal businesses, renaming the snacking division Kellanova. This new entity includes brands like Pringles, Cheez-It, Pop-Tarts, Kellogg's Rice Krispies Treats, Nutri-Grain, and RXBAR. Other brands like Kellogg's (international), Eggo, and MorningStar Farms were also included.
- The cereal business was renamed WK Kellogg (KLG). Despite its name, Kellogg was more of a snack food company than a cereal company. The split allowed Kellanova's high-growth snack business to flourish without being weighed down by the slower-growing cereal segment, a move that quickly attracted Mars' interest.
- Mars sees snacking as a large, attractive, and durable category. Kellanova's salty snacks complement Mars' existing chocolate-focused portfolio, which includes Snickers, M&Ms, Twix, Dove, and Extra Gum. Mars also has a strong presence in pet care with brands like Royal Canin, VCA, Pedigree, Whiskas, and Iams.
- The acquisition gives Mars entry into new snacking categories and adds two billion-dollar brands, Pringles and Cheez-It, bringing Mars' total to 15. It also expands Mars' health and wellness snacking portfolio with RXBAR and Nutri-Grain. Kellanova's brands outperform competitors, especially among Gen Z and Millennial consumers.
Overall, this acquisition seems like a smart fit. It combines Kellanova's salty and healthy snacks with Mars' chocolate-heavy lineup, providing good diversification. The premium is generous for investors, especially considering the stock's value when the deal was first reported in early August.
Snacking is the future of the food industry. Over the past decade, the consistent theme has been the focus on snacks, which are a large, attractive, and durable category. With consumers always on the go, snacks have become a priority in the US market.
When Kellogg split into two companies, it allowed the snack business to thrive independently. The premium received in this deal is a testament to that strategy. This acquisition might even prompt Pepsico (PEP, Financial) to consider separating its high-growth snack segment from its slower-growing beverage segment, a move that investors have long advocated for.
