Kellanova's stock climbs as Mars announces deal to acquire Pringles maker for nearly $36 billion

By James Rogers

Mars to acquire snack maker Kellanova

Shares of Kellanova were up 7.7% Wednesday, after Mars announced a deal to acquire the maker of Pringles and other snack foods.

Mars has agreed to acquire Kellanova (K) for $83.50 per share in cash in a deal valued at $35.9 billion, including assumed net leverage, the companies said in a statement. The deal represents a premium of approximately 44% to Kellanova's unaffected 30-trading-day volume-weighted average price as of Aug. 2, 2024, according to the companies. The deal is expected to close in the first half of 2025.

"In welcoming Kellanova's portfolio of growing global brands, we have a substantial opportunity for Mars to further develop a sustainable snacking business that is fit for the future," Mars CEO Poul Weihrauch said in the statement.

Related: Kellanova's stock skyrockets on report Mars is exploring acquisition

Kellanova shares ended Tuesday's session at $74.50.

The Wall Street Journal had reported that a deal was imminent. Earlier this month, Reuters reported that Mars was exploring an acquisition of Kellanova, which was spun off last year from what was then Kellogg Co.

Analysts say that a Kellanova deal would make sense, with Jefferies saying that an acquisition would speak to Mars' snacking ambitions. "Mars has stated previously that doubling its snacking business is a goal over the next decade," Jefferies analyst Rob Dickerson wrote in a note released Wednesday. "By our math, a [Kellanova] acquisition would increase Mars' global and U.S. snacking businesses by 40% and 60%, respectively," he added.

Related: Why a Mars acquisition of Pringles maker and Kellogg spinoff Kellanova makes sense

D.A. Davidson also sees a deal as beneficial for Mars. "Deal logic, as we envision it, makes sense," analyst Brian Holland wrote in a note released earlier this month. "At its most simplistic, we presume Mars values [Kellanova's] geographic whitespace and comparatively attractive valuation."

The potential Kellanova takeover by Mars comes less than a year after the splitting of Kellanova and the former Kellogg Co.'s North American cereal business, now called WK Kellogg Co. (KLG), Stifel analyst Matthew E. Smith observed in a note earlier this month. "We believe a transaction would further validate the power of Kellanova's brands and growth potential, both in North America and internationally," he wrote.

John Oh, an analyst at Third Bridge, told MarketWatch that the deal will benefit Mars. "The acquisition of Kellanova unlocks a significant opportunity for Mars to meaningfully compete with iconic brands in the growing category of salty snacks," he said via email Wednesday.

Related: Kellanova stock climbs on top- and bottom-line beats, plus lifted outlook

"Our experts tell us Cheez-It and Pringles are the foundational growth engines for Kellanova," Oh said. "Now under Mars, the additional scale should bode well for these iconic brands to unlock further growth, particularly in international markets such as Europe and Latin America."

Kellanova shares are up 43.5% in 2024, outpacing the S&P 500's gain of 14.1%.

Spreads on the company's bonds, meanwhile, have been tightening since the first news reports emerged, as the following charts from data solutions provider BondCliQ Media Services show.

Spreads on the 5.75% notes due May of 2054 have tightened by almost 20 basis points, as the green arrow indicates.

That same series were seeing the most buying early Wednesday.

Kellanova has almost $6 billion of outstanding bonds with some $750 million worth maturing in 2026.

-James Rogers

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08-14-24 1249ET

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