After a week of talks, chocolate and pet food behemoth Mars will shell out a whopping $36 billion (including debt) to snap up Kellanova, the maker of popular snacks like Pringles and Pop-Tarts.
The family-owned Mars will fork over $83.50 per share in cold, hard cash for Kellanova, making it the biggest takeover in the food industry. As a privately owned company, Mars can't offer shares, so it'll need to dig deep into its pockets or pile on the debt to cover this hefty price tag. When rumours of the deal surfaced two weeks ago, Kellanova's value jumped from around $20 billion to over $24 billion. The final cash price, excluding debt, is a staggering $29 billion, marking a 30% increase in less than a fortnight.
This mega-deal comes as other big-name food companies like Kraft Heinz, Mondelez, and Hershey are struggling with slowing sales. With shoppers tightening their belts, they're turning to cheaper, generic alternatives instead of splashing out on pricey branded products. Even foreign giants like Nestlé and Unilever, as well as fast food chains like Starbucks and McDonald's, are feeling the heat.
The Kellanova deal would be Mars' biggest ever, eclipsing its $23 billion purchase of Wrigley in 2008. This union would create a snacking powerhouse, combining Mars' chocolate empire (think Twix, Bounty, and Milky Way) with Kellanova's popular snacks like Pop-Tarts, Rice Krispies Treats, and Eggo waffles.
Kellanova, once part of cereal maker Kellogg, was spun off last year to focus on snacks. Kellogg retained the classic cereal brands like Corn Flakes and Fruit Loops.
This isn't the first time a massive deal in the food industry has backfired. In 2013, Warren Buffett's Berkshire Hathaway and Brazil's 3G investment group teamed up to buy Kraft Heinz for $23.3 billion. However, the investment turned sour, with Kraft Heinz writing down its assets by a whopping $15 billion in 2019. Buffett admitted to overpaying, but Mars is unlikely to make the same mistake. As one of the world's largest private companies, with a history spanning over a century, Mars has a track record of success.
Mars already dominates supermarket shelves with brands like Whiskas, Pal, M&M's, Snickers, and Dolmio. The addition of Kellanova's products would give Mars an even stronger grip on the market, particularly in snacks and fast-moving consumer goods. This increased dominance is likely to raise eyebrows among competitors and retailers alike.
While Mars will have a formidable presence, there's still plenty of competition in the snacking world. Companies like PepsiCo (with Frito Lay and Smiths), Mondelez (Cadbury and Milka), Nestlé, Lindt, Ferrero, and Hershey will continue to battle for market share.
Overall, the Mars-Kellanova deal is a game-changer for the food industry, with far-reaching implications for consumers, retailers, and competitors.
