Mars has confirmed that it will purchase Pringles maker Kellanova in a nearly $36 billion agreement, making it the year’s biggest deal to date.
The maker of M&M’s said last Wednesday that it will pay $83.50 per share for Kellanova, representing about a 33% premium to its closing price on 2 August.
The deal is a bet on consumers continuing to indulge in branded snacks, and it comes as packaged food companies face stalling growth after years of price hikes to cover rocketing inflation.
Mars chief executive Poul Weihrauch said in an interview with Reuters that the combined company aims to hold prices steady and not pass on costs from the deal to consumers.
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 by approximately 25% from 2019 to 2023, far more than other categories such as housing and medical care, according to the US Department of Agriculture.
However, inflation has started to moderate, according to the US consumer price index data released last week.
Challenges
Consumers in the US and Europe – major markets for both companies – have been ditching brands and opting for cheaper private label goods.
Investors are also worried about a decline in sales from the greater adoption of weight loss drugs such as Ozempic and Wegovy, which curb appetites.
Weihrauch said half of the company’s portfolio will be “wholesome” snacks such as low-calorie Special K, Kind Bars and Nutrigrain.
Unlike competitor Nestlé, Mars currently has no plans to develop specific products for users of the weight loss drugs.
Mars holds 4.54% of the US snacking market, while Kellanova holds about 3.9% according to data from GlobalData.
The Deal
After the completion of the deal in the first half of 2025, Kellanova will become part of Mars Snacking, led by Global President Andrew Clarke, the companies said.
In a regulatory filing, Kellanova said the closing date for the deal could be extended by up to 12 months if the companies do not receive the necessary regulatory approvals by August 2025.
Share of Kellanova rose about 8% in early trading last week to $80.25.
Excluding debt, the deal values Kellanova at $28.85 billion based on its outstanding share count, according to Reuters calculations.
Investment firm TOMS Capital Investment Management – which took a significant stake in Kellanova earlier this year and was in talks with the company to improve shareholder returns – is happy with the deal price, according to a person familiar with the matter.
TOMS declined to comment.
Under the terms of the deal, Mars will have to pay a termination fee of $1.25 billion in case of failure to obtain regulatory approvals, while Kellanova will have to pay $800 million to Mars in case of a change in board recommendation.
Mars intends to finance the deal through cash and a debt financing commitment of $29 billion from JPMorgan Chase and Citi.
Read More: Kellanova Shares Pop On Report Of Mars Considering Buyout
