• by Sarah Mahoney , Staff Writer @mahoney_sarah, August 9, 2024

Kellanova, which owns familiar food brands like Pringles, Pop-Tarts, Cheez-It and Eggo, is looking mighty tasty right now. Mars, the privately owned candy and pet food giant, is said to be cooking up an offer for Kellanova, worth about $30 billion.

If the deal comes to pass and gets through regulatory hurdles, it will mark the most significant transaction since the $45 billion Kraft Foods/Heinz acquisition in 2015.

Observers seem to like the idea, and Kellanova's shares jumped as much as 20% after the reports.

Analysts see plenty of upside. “Kellanova boasts an attractive geographic and category footprint, with 30% of sales stemming from faster-growing emerging markets and convenient snacking options accounting for more than half of its portfolio,” writes Erin Lash, an analyst who follows Kellanova for Morningstar. “We believe this exposure could complement Mars’ confectionery and pet food businesses. Further, we think a deal could buoy Mars’ top-line growth prospects in an industry that faces waning demand following pronounced inflation-induced price hikes over the past few years and weakening consumer spending.”

Kellanova’s investments in brand-building seem to have given it some protection from those trends. In results released last week, Kellanova reported that second-quarter sales fell 5% to $3.19 billion, significantly impacted by currency fluctuations and last year’s Russia divestiture. Excluding those factors, net sales increased by 4%, well ahead of some competitors.

PepsiCo, for example, parent of Frito-Lay, recently reported a 4% drop in sales, attributing the downturn to cost-conscious consumers. But the surge in the use of such drugs as Ozempic and Wegovy, sparking widespread interest in weight loss and healthier eating, is also a factor. Candy maker Hershey also recently posted a slight dip in sales.

Morningstar’s Lash thinks some of Kellanova’s strength comes from the money it spends supporting brand marketing.

“While macro and competitive angst continues to vex industry peers, Kellanova has seemingly been unfazed,” she writes, partly due to “its heightened emphasis on consumer-valued innovation and marketing support.”

That spending has intensified, with its split from WK Kellogg now firmly in the rearview mirror. (That company continues to own many of the breakfast cereal brands, including Froot Loops and Frosted Flakes.)

Observers say the reports could trigger rival bids, and also spark more consolidation in the CPG category.

The Financial Times cites Robert Moskow, an analyst at TD Cowen, saying a bid for Kellanova “could usher in another cycle of consolidation in the packaged foods space,” echoing back to Y2K-era deals, like General Mills buying Pillsbury and Kraft swallowing Nabisco. 

Notes Moskow: “At times like this, when growth slows, balance sheets are relatively clean, and valuations dip, the market leaders in food tend to look more closely at big combinations to drive cost synergies.”