Mars Eyes Potential Acquisition of Kellanova

Family-owned packaged food giant Mars, known for its popular candy brands such as M&M’s and Snickers, is exploring a potential acquisition of Kellanova, the maker of snacks such as Cheez-It and Pringles, according to sources familiar with the matter.

A potential acquisition would be one of the largest ever in the packaged food sector, considering Kellanova’s market value of approximately $27 billion, including debt. This move would test the regulators’ appetite for consolidation within the sector.

Market Performance and Acquisition Appeal:

Kellanova’s shares have surged about 20% since it split from WK Kellogg Co. last October. Despite this increase, the shares are trading at a discount compared to peers like Hershey and Mondelez International, making it an attractive acquisition target.

There is no certainty that Kellanova will pursue a deal with Mars. Other potential suitors could approach Kellanova, and no agreement may be reached with any party. The sources requested anonymity due to the personal nature of the matter. Kellanova declined to comment, and Mars did not immediately respond to requests for comment.

Robust Deal-making in the Packaged Food Sector:

The packaged food sector has seen robust deal-making as companies seek scale to withstand the impact of price inflation and weight-loss drugs affecting demand. Last year, J.M. Smucker acquired Twinkies maker Hostess Brands for $5.6 billion, a deal that united two major American snack makers.

However, many recent deals have been smaller compared to the Heinz and Kraft merger almost a decade ago, as U.S. antitrust regulators have become more cautious about such transactions leading to higher prices and fewer choices for consumers.

Impact of Food Price Inflation:

According to current statistics from the U.S. Department of Agriculture, food prices have risen 25% between 2019 and 2023, faster than other consumer goods and services. This price increase has raised concerns among regulators about the impact of large mergers and acquisitions in the food industry.

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 that the deal would hike prices for millions of Americans.

Mars’ Acquisition History and Strategy:

A deal for Kellanova would be Mars’s biggest ever, surpassing its $9.1 billion takeover of veterinary hospital operator VCA in 2017. Based in McLean, Virginia, Mars has been seeking to diversify its business through acquisitions.

The company is owned by the descendants of its founder, Frank C. Mars. It generates about $47 billion in annual sales and operates under three divisions: Mars Petcare, Mars Snacking, and Mars Food & Nutrition.

Kellanova’s Global Operations:

Kellanova produces its products in 21 countries and markets them in over 180 countries. Its separation from WK Kellogg last year left Kellanova with snacks like Pop-Tarts and Rice Krispies Treats, frozen breakfast foods like Morningstar Farms and Eggo, and an international cereal division.

With a market value of $1.5 billion, WK Kellogg retained the North American cereal business, including brands like Kellogg’s, Froot Loops, Frosted Flakes, and Rice Krispies cereals, under a licensing agreement with Kellanova.

In May, Reuters reported that investment firm TOMS Capital Investment Management had taken a stake in Kellanova and was discussing with the company how to improve shareholder returns. The details of these discussions remain undisclosed.