16 Feb 12 Kellogg buys Pringles brand after Diamond Foods bows out
The cereals giant Kellogg hopes to add some more snap, crackle and pop to its financial results with the acquisition of Pringles. The $2.7bn (£1.7bn) deal adds the famous tubes of saddle-shaped crisps into a portfolio that includes Kellogg’s Corn Flakes, Rice Krispies, Special K and Cheez-It crackers. Pringles brings in revenues of about $1.5bn, tripling the size of Kellogg’s non-cereal snacks division and adding 1 700 employees.
At a stroke, Kellogg becomes the number 2 snack company in the world, after PepsiCo’s Frito-Lay, which owns Walkers Crisps.
The company got a second chance to buy Pringles after the current owner, Procter & Gamble, pulled out of a deal to sell to Diamond Foods, which has become embroiled in an accounting investigation and signalled last week that it was not in a position to follow through on the acquisition.
Ken Perkins, an analyst at Morningstar, said Pringles faced intense competition from other crisps businesses, but that intense competition was a fact of life.
“Pringles will be Kellogg’s second-largest brand and give the firm a greater presence in the global snack category,” Mr Perkins told clients. “Kellogg has recently faced fierce competition in its cereal business, and we are not surprised by its decisive efforts to strategically expand its global snack portfolio.”
Pringles were created by P&G in 1968, when they were known as “Pringles Newfangled Potato Chips”.
Kellogg estimated it could cut $50m to $75m in costs out of the combined businesses, and said Pringles would add to the group’s earnings from 2013.
It will borrow $2bn to complete the deal and expects to limit its share repurchase plan for about two years. John Bryant, Kellogg’s chief executive, said the cost was worth it to get his hands on “one of the most recognised brands in the world”.
P&G’s deal last year to sell Pringles to Diamond valued the business at $2.35bn, but while Kellogg is paying more, P&G will actually receive less because a different financial structure means it will receive almost 50 per cent of the proceeds in cash.
P&G shares were up 4 per cent on the New York stock exchange yesterday on relief that it will finally be rid of its last remaining food business, allowing it to concentrate on its other blockbuster brands which range from Ariel washing liquid to Duracell batteries and Gillette shaving products.