Commentary

Kellogg, Ferrero Bake $1.3B Deal For Keebler's, Famous Amos And More

Getting back to the grains of its existence, Kellogg Co. yesterday sold a large chunk of its cookie, fruit and fruit-flavored snacks, pie crust and ice cream cone businesses to Ferrero Group, the Italian confectionary company with U.S. headquarters in Chicago. 

Keebler, Mother’s, Famous Amos, Murray’s and cookies manufactured for the Girl Scouts of the U.S.A. are some of the brands involved in the all-cash transaction, which is valued at $1.3 billion. The deal is expected to close at the end of July.

“Kellogg has been trying to sell off those brands since November. It said the brands weren’t a good fit with the rest of the company’s offerings, and the company had difficulty devoting the resources necessary to compete in the crowded cookie market,” writes Danielle Wiener-Bronner for CNN Business.  “Last year, the businesses Kellogg is selling to Ferrero brought in about $900 million in sales but only $75 million in operating profit,” she reports.

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The deal includes factories in Augusta, Ga., Florence and Louisville, Ky., Allyn, Wash. as well as two plants in Chicago and a leased facility in Baltimore.

“The company hadn’t prioritized promotions and innovation investments in the cookie and fruit-snacks units in recent years. Kellogg will keep the rest of its snacks business in North America, including Pringles, Cheez-It snacks and Rxbar, a protein bar. It also owns cereal products including Frosted Flakes,” Micah Maidenberg writes for the Wall Street Journal.

“The acquisition is the latest in a string of deals for Ferrero. The company, founded in Italy in 1946 as a family business, entered the U.S. market in 1969 with its Tic Tac mints. In the past two years, it has built up that foothold, buying Ferrara Candy Co. for $1 billion and Nestle’s U.S. candy business for $2.8 billion. Its array of brands now includes Butterfinger, SweeTarts and Crunch,” Lauren Hirsch reports for CNBC.

“Its U.S. strategy has been to buy brands that, like Nestle’s candy business and Kellogg’s cookie business, have been neglected within broader food companies’ portfolios. It plans to pour its resources into reinvesting and modernizing those brands. Already, it has rolled out a ‘better Butterfinger’ with larger peanuts, more cocoa and milk and no hydrogenated oils,” Hirsch adds.

“Ferrero is investing in the biscuit business because this category accounts for a significant portion of consumption of sweets outside the meal, a sector next to Ferrero’s core business,” Marco Eccheli, director at the Italian unit of consulting firm AlixPartners, tells Reuters’ Francesca Landini and Uday Sampath Kumar.

“He added that the deal would also boost the Italian company’s negotiating power with big U.S. retail chains,” they write.

“This divestiture is yet another action we have taken to reshape and focus our portfolio, which will lead to reduced complexity, more targeted investment, and better growth. Divesting these great brands wasn't an easy decision, but we are pleased that they are transitioning to an outstanding company with a portfolio in which they will receive the focus and resources to grow,” Kellogg chairman and CEO Steve Cahillane states in the news release announcing the deal.

“Since Cahillane took Kellogg’s reins in 2017, the Battle Creek, Michigan-based packaged-food maker has shifted its priority to increasing sales, instead of cutting costs. The goal has become tougher to achieve as consumers move away from packaged food and cereal has lost popularity with Americans,” point out Jeff Sutherland and Deena Shanker for Bloomberg.

“Kellogg isn’t alone in seeking to lighten its portfolio -- fellow packaged-food giants are trying to shed lethargic brands in a bid to maximize sales and profit. General Mills Inc. has said it wants to divest about 5% of its portfolio. Campbell Soup Co. also wants to sell parts of its business,” they add.

Kellogg was started as a health food company by W.K. Kellogg and his brother, Dr. John Harvey Kellogg, at the turn of the 20th century. 

“In a fortunately failed attempt at making granola, [the Kelloggs] changed breakfast forever when they accidentally flaked wheat berry. W.K. kept experimenting until he flaked corn, and created the delicious recipe for Kellogg’s Corn Flakes,” reads the company’s initial entry in a timeline of its origins in 1898, to the formation of Battle Creek Toasted Corn Flake Company in 1906, to the more recent introduction of more fiber into less-wholesome products such as Froot Loops.

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