Family-owned packaged private food giant Mars Inc., best known for its eponymous bar and other brands such as Snickers and M&M’s, is considering a potential acquisition of Pringles maker Kellanova as reported on Sunday. This deal would be one of the biggest ever in the packaged food sector, given Kellanova’s market value of about $27 billion including debt.
Food giant Mars, is exploring a potential merger with Kellanova maker of snacks such as Cheez-It and Pringles, according to people familiar with the matter. Also, it will test the appetite of regulators to allow consolidation in the sector.
Possible Mars acquisition of Kellanova
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 packaged food sector
The packaged food sector has seen a healthy dealmaking as companies seek scale to weather the impact of price inflation and weight-loss drugs weighing on demand.
J.M. Smucker acquired Twinkies maker Hostess Brands last year for $5.6 billion, in a deal that united two major American snack makers.
Though most of the deals are nothing compared to the mega merger between Heinz and Kraft clinched almost a decade ago. This is 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 $25 billion proposed acquisition of Albertsons, citing concerns the deal would hike prices for millions of Americans.
Impact of Kellanova acquisition on Mars
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. 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.
Stock update
Kellanova’s share price is up about 20% since it split from WK Kellogg Co last October, but are still trading at a discount to some of its peers. These includes Hershey and Mondelez International, making it a potential acquisition target. Shares of Kellanova rallied 1.50% to $62.98 on Friday, on what proved to be an all-around grim trading session for the stock. This was the stock’s fourth consecutive day of gains. Kellanova share price at closing was $0.25 below its 52-week high ($63.23), which the company achieved on May 2nd.
