P&G sells Pringles to Kellogg after Diamond deal loses its luster
Kellogg boss John Bryant said Pringles would immediately catapult Kellogg into the number two position in worldwide savory snacks and “significantly advance” its goal of building a global snacks empire on a par with its cereals business.
Kellogg, which owns the Keebler, Cheez-It and Special K Cracker Chips brands, said Pringles’ infrastructure in markets outside the US would also help it boost distribution for these brands overseas.
'There has been some disruption to the business'
Speaking on a conference call with analysts this morning, Bryant said the "financially very attractive" deal would add $500m to Kellogg's North American snacks sales and almost triple the size of its international snacks business.
He added: "After this deal, our snacks and cereals business will be of a similar size."
When quizzed about the recent performance of Pringles, he would not go into details, but added: "It's reasonable to expect that there has been some disruption to the business, and we realise that we need to invest in it, but we are confident in its long-term potential."
Asked whether further acquisitions were in the pipeline, he said: "We are always looking for additional bolt-on acquisitions to make our [snacks] business even stronger."
Deal to go through in summer pending regulatory approvals
The companies expect to complete the all-cash transaction this summer pending regulatory approvals, said P&G chief executive Bob McDonald.
He added: "This is an excellent development for P&G, Pringles and Kellogg, creating value for our shareholders and representing an outstanding opportunity for Pringles employees with a leading company in the food sector.”
Assuming the transaction closes around June 30, Kellogg expects it will generate synergies of “at least $10m in 2012, more in 2013 and ongoing synergies of between $50m and $75m a year thereafter”.
Diamond: ‘Positive and constructive working relationship with P&G throughout’
Diamond, which recently parted company with its CEO and CFO after an internal probe found it had wrongly accounted for payments to walnut growers, said it and P&G had mutually agreed to terminate their deal.
No break-up or other fees will be paid in connection with the termination, said acting president Rick Wolford, who took the helm after it emerged that a $20m “continuity” payment to growers in August 2010 and a $60m “momentum” payment were improperly recorded when Diamond's financial results were published.
"Diamond has enjoyed a positive and constructive working relationship with P&G throughout this process, and the mutual termination of our agreement and release of all associated liabilities was reached in the same spirit," said Wolford.
The biggest markets for Pringles are the US and the UK, but they are sold in more than 140 countries, generating sales of $1.5bn. They are produced in factories in Tennessee and Belgium.
Several suitors had been touted as possible bidders for Pringles after the Diamond deal appeared to be turning south, including Kraft, ConAgra and General Mills.
Deutsche Bank: Deal makes strategic sense for Kellogg
In a note published shortly after the deal was announced this morning, Deutsche Bank analysts said the deal made strategic sense for Kellogg and would increase snacks to about 46% of total sales vs the current 40%.
"This is important as almost all cultures embrace snacks while few globally embrace cereal."
But it cautioned: "However, the stacked Pringles chip is not as unique as it once was, and integration will be challenging given Kellogg's numerous investment needs and difficult core markets."