Joe McConnell
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It’s snack time in the packaged food industry. Confectionery giant Mars’ $36 billion investment in Pringles maker Kellanova could put other multinational food and beverage companies back in the mix.
Privately held Mars, which makes Snickers and Skittles, will pay $83.50 in cash per share for the maker of Cheez-it and Eggo waffles. The price represents a 42 percent premium to Kellanova’s undisturbed three-month average.
With few major U.S. snack groups leVscek, a deal would never have been cheap. Including Kellanova, there are only seven companies in the U.S. packaged food industry with market values above $20 billion.
Mars is paying the equivalent of 16 times EV to forward EBITDA for Kellanova. The median ratio for recent deals in the industry was about 15 times, according to JPMorgan. And the deal seems even more expensive given the difficult outlook for snacks, especially the less healthy varieties that are in Kellanova’s portfolio.
According to Citi, salty snacks have been the fastest-growing category in the packaged foods industry over the past 14 years, with a compound annual growth rate of approximately 5.8% between 2010 and 2023.
But that growth has slowed sharply this year. Inflation-conscious consumers, especially low-income ones, are cutting back. At the same time, the rise of GLP-1 weight-loss drugs like Ozempic, Wegovy and Zepbound is reshaping Americans’ waistlines. In a Morgan Stanley study earlier this year, about two-thirds of GLP-1 drug users surveyed said they’d cut back on snacking by more than 50 percent. Half of those surveyed also said they’d cut back on sweets by more than 75 percent or stopped eating them altogether.
The pressure is starting to show. Kellanova’s organic net sales increased 5 percent in the first six months of the year. But that was largely driven by price increases. This strategy is not sustainable: consumers will buy less or choose private label brands.
Mars, as a private company with more than $50 billion in sales, chose not to provide cost-savings targets to justify its deal, but the overlap between the two seems limited. Mars is clearly willing to pay to diversify its chocolate snack portfolio. Kellanova, which makes about half of its $13 billion annual sales from chips and saltine crackers, would. Still, $36 billion is a pretty big deal for what seems like a dubious defensive move.
pan.yuk@Vscek.com
