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FAMILY-OWNED candy giant Mars is buying Cheez-It maker Kellanova in a nearly US$36 billion deal, bringing together brands from M&M’s and Snickers to Pringles and Pop-Tarts in the year’s biggest deal to date.
Mars said on Wednesday (Aug 14) it will pay US$83.50 per share for Kellanova, representing about a 33 per cent premium to its closing price on Aug two before Reuters first reported that Mars was exploring a deal for the for the maker of frozen breakfast foods, such as Morningstar Farms and Eggo.
The deal is a bet on consumers continuing to indulge in branded snacks, and comes as packaged food companies face stalling growth after years of price hikes to cover sky-rocketing inflation.
The combined company aims to hold prices steady, said Mars CEO Poul Weihrauch in an interview with Reuters Wednesday, and not pass on costs from the deal to consumers.
“We are a big and stronger company,” Weihrauch said. “We hope to be able to absorb more costs in our structure and help alleviate the issues we have in an inflationary environment.”
Food prices in the US increased roughly 25 per cent from 2019 through 2023, far more than other categories such as housing and medical care, according to data from the US Department of Agriculture. But inflation has started to moderate, according to the US consumer price index data released Wednesday.
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Consumers in the US and Europe – major markets for both companies – have been looking for cheaper alternatives or ditching brands for cheaper private label goods.
Kellanova has seen private label encroach on its market share for cereal in Europe and other areas, said CEO Steve Cahillane. The company sells sweet cereals such as Smacks, Frosties and Coco Pops in Europe, according to securities filings.
The US packaged food sector is seeing robust dealmaking as companies seek scale to weather the impact of inflation-weary consumers cutting back and shifting their purchases to private label brands.
Investors are also worried about a decline in sales from the greater adoption of drugs such as Ozempic and Wegovy for weight loss, which curb appetites and lead to feelings of fullness.
Weihrauch said half of the company’s portfolio will be “wholesome” snacks such as low-calorie Special K, Kind bars and Nutri-grain.
Unlike competitor Nestle, Mars has no plans currently to develop new products specifically for people using the weight-loss drugs, Weihrauch said.
Mars said it plans bolster its snacking division, invest locally and introduce more healthy options through the deal, as the category is “attractive and durable.”
The company has a 4.54 per cent share of the US snacking market, while Kellanova holds about 3.9 per cent, according to data from GlobalData, well behind market leader PepsiCo.
Kellanova sells noodles in Africa, though the business has faced hurdles due to the continent’s economic struggles.
Cahillane said Kellanova’s distribution network in Africa offers Mars an opportunity to take its candy to the continent. Mars’ presence in China offers an “enormous” opportunity for Pringles, Cahillane said.
The acquisition, which dwarfs Mars’ US$23-billion takeover of Wrigley in 2008, is also not expected to face too many antitrust roadblocks due to the limited overlap in the offerings of the two companies, legal experts had told Reuters.
After the completion of the deal in the first half of 2025, Kellanova will become a part of Mars Snacking, led by Global President Andrew Clarke, the companies said. It will be based in Chicago. Cahillane, a veteran of the packaged food and drinks industry who previously held positions at Coca-Cola, said he would be leaving the combined company when the deal closes.
Shares of Kellanova rose about 8 per cent to US$80.25 in early trade. On an equity basis, the company is valued at US$28.58 billion, according to a Reuters calculation.
Kellanova, which split from WK Kellogg last October, is rooted in a salty snacks business and sells cereal outside of North America. WK Kellogg was left with the North American cereal business of Kellogg, the original parent company.
“It’s now clear why Kellanova went through the spinoff of its slow-growing domestic cereal business last year. We may see more packaged food companies divest or spinoff slower-growing segments of their portfolios to attract new buyers,” CFRA Research’s Arun Sundaram said.
Reuters reported in May that investment firm TOMS Capital Investment Management had taken a “significant” stake in Kellanova and was in talks with the company to improve shareholder returns.
Under the terms of the deal, Mars will have to pay a termination fee of US$1.25 billion in case of failure to obtain regulatory approvals, while Kellanova will have to pay US$800 million to Mars in case of a change in board recommendation.
Mars intends to finance the deal through cash and new debt. Citi is its financial adviser, while Goldman Sachs is advising Kellanova. REUTERS
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