KELLOGG AGREED to buy Pringles potato chips from Procter & Gamble for $2.7 billion in a cash deal that will nearly triple the cereal maker’s international snack business.
The deal will also let household goods maker P&G finally leave the food business after its agreement with Diamond Foods fell apart.
Shares of Kellogg, which is aiming to expand a snack portfolio that includes Keebler cookies, Cheez-It crackers and Kashi snack bars, rose 5 per cent in morning US trading.
Adding Pringles chips to the mix will increase the size of Kellogg’s snack business to where it will account for as much of total revenue as its cereal business, the world’s largest, with brands like Special K and Rice Krispies.
P&G had agreed to sell Pringles to Diamond Foods last year, but that deal fell apart this month following the discovery of improper accounting that led Diamond to replace its chief executive and finance chief. The US government is looking into Diamond’s accounting practices.
Kellogg chief executive John Bryant declined to comment on his company’s interest in Diamond or any of its brands. He did admit, however, that Diamond’s brands made more strategic sense to Kellogg, now that it will become the world’s second-largest savoury snack company behind PepsiCo’s Frito-Lay.
“They’re clearly a fit in the portfolio. You could say our ability to do bolt-on acquisitions has probably expanded with the addition of this business,” Mr Bryant said.
Pringles international distribution network can help lift sales of Kellogg’s other brands, Bernstein analyst Alexia Howard said.
“We believe that Kellogg will be able to generate meaningful revenue synergies, particularly in complementary regions where Pringles is relatively strong but Kellogg is weak, most notably Asia,” Mr Howard wrote in a research note.
The companies expect the deal to close by this summer. Both companies declined to say when their discussions started but when an analyst asked Mr Bryant why his company did not buy Pringles when it was up for sale last year, he said it was hard to compete with the Diamond offer. – (Reuters)
