Kellogg Company Agrees To Buy Pringles For Nearly $2.7 Billion (NYSE:K)
Kellogg’s chief executive, John A. Bryant, said in a conference call with analysts that Pringles is in 140 countries and offers “the potential for increased scale in Europe and a good entry point into snacking in Asia and Latin America.” Internationally, the snack business is increasing in popularity and growing fast.
Kellogg decided to purchase the snack company after an earlier agreement for Diamond Foods to buy the company fell apart. Last spring, Pringles’ parent company, Procter & Gamble agreed to sell the business to Diamond for $2.4 billion in stock. Then, Diamond began facing criticism over questionable payouts to its walnut farmers and announced that it would have to restate two years’ worth of financial statements and it had put its chief executive on administrative leave.
Procter & Gamble was forced to re-evaluate its plans and said it might have to consider alternatives for Pringles. Mr. Bryant of Kellogg said in an interview that Kellogg was interested in Pringles last year, but it felt hard-pressed to compete with Diamond’s bid because of the lesser tax bill that would accompany the bid. When Diamond’s offer collapsed, Kellogg and Procter & Gamble came to an agreement within a matter of days. Mr. Bryant said, “It’s an exciting asset and an iconic brand. We moved very quickly.”
The deal adds a prominent brand to Kellogg’s existing lineup, helping the company increase its presence in the snack food industry. Over the years, Kellogg has reduced its reliance on its mainstay cereal business, which includes Corn Flakes and Rice Krispies. The company added Keebler in 2000, paying $4.5 billion for the company. Kellogg’s current snack offerings include Keebler and Cheez-It.
Analysts with Stifel Nicolaus wrote in a research note, “The company already has a dominant position in the snacks category, including fruit snacks, granola bars, cookies, crackers, etc. Pringles will simply add to this dominant market share position in these important growth categories.” However, analysts at Jefferies & Company were more skeptical, writing, “we find ourselves less than enthralled with the strategy behind purchasing a domestically tired brand that appears somewhat out of sync with the trends toward better-for-you snacking.”