Anika Begay
By Savyata Mishra
(Reuters) – Shares of Kellanova, the maker of Pringles, rose 18 percent in early trading on Monday after a Reuters report said candy giant Mars was considering a potential takeover of the company.
The deal between family-owned Mars and Kellanova, known for snack brands such as Rice Krispies Treats and Pop-Tarts, would be one of the largest ever in the packaged foods industry.
“We believe K’s portfolio of popular snack brands will be a good fit with Mars’ and help them expand their presence in international markets,” said TD Cowen analyst Robert Moskow.
Packaged food deals increased from last year, including: Campbell’s Soup (NYSE:) acquired Sovos Brands, the owner of Rao’s pasta sauce, for $2.33 billion, and J.M. Smucker’s (NASDAQ:) acquisition of Twinkies maker Hostess Brands for $5.6 billion.
Analysts say the Kellanova-Mars deal could spark further consolidation in the industry.
Kellanova shares rose to $74.33 on Monday, even as U.S. stocks fell on fears the country could enter a recession.
As of Friday’s close of business, Chicago-based Kellanova had a market value of about $27 billion, including debt.
In its second-quarter results, the company raised its full-year organic sales and profit forecasts, thanks to steady demand for its flagship brand, Pringles, and effective promotions.
DA Davidson analyst Brian Holland expects Kellanova to earn more than $87 a share if acquired, based on 15 times its expected earnings before interest, taxes, depreciation and amortization (EBITDA) over the next 12 months.
“Mondelez (NASDAQ:) could be seen as another potential acquirer, although we believe the implied leverage is a limiting factor,” Holland said.
Kellanova comprised Kellogg’s (NYSE:) global snacks business before the packaged foods giant spun off its slow-growing North American cereal unit WK Kellogg last October.
Sales growth at U.S. packaged food companies such as Kraft Heinz (NASDAQ:), Mondelez and Hershey has taken a hit, as budget-conscious shoppers save their money for essential purchases and hunt for cheaper, private-label alternatives to pricier branded products.
“At times like this, when growth is slowing, balance sheets are relatively clean and valuations are falling, food market leaders tend to look more carefully at large combinations to generate cost synergies,” said TD Cowen’s Moskow.
Kellanova’s forward 12-month price-to-earnings ratio, a common benchmark for valuing stocks, was 16.50, compared with Hershey’s 20.99 and Mondelez’s 19.69.
