Kellogg Co. has entered into an agreement to acquire Procter & Gamble’s Pringles® business for $2.695 billion in cash. The acquisition will, according to a news release, significantly advance Kellogg’s goal of building a global snacks business on par with its global cereal business.
“Kellogg has established a strong U.S.-based snacks business since its successful acquisition of Keebler more than a decade ago,” the release says. “With the acquisition of Pringles, the company will build a truly global snacks platform and organization for further growth.”
Kellogg’s announcement comes just days after Diamond Foods ousted its CEO and CFO following an internal investigation into some accounting practices. Diamond Foods had planned to merge with P&G’s Pringles business for $1.5 billion; however, news of the executive firings caused P&G to back away and look for another buyer. According to published reports, P&G’s saw considerable interest in its Pringles business after the Diamond Foods firings.
Highlights of the Pringles acquisition by Kellogg, according to the release, include:
• Pringles’ brand strength and consumer appeal fit well with Kellogg Co.’s core strengths in brand-building and innovation, adding a complementary product to its high-quality snacks brands, most notably Keebler, Cheez-It, and Special K Cracker Chips;
• In the U.S., the acquisition provides a new source of growth for the company’s already strong presence in the snacks category;
• Internationally, Pringles provides a strong brand and an established platform from which Kellogg can more aggressively leverage its brands in the international snacks category;
• Kellogg will benefit from the collective expertise of more than 1,700 talented Pringles employees. The similar heritage, culture and values of Kellogg and P&G are expected to facilitate a smooth transition; and,
• The companies expect to complete the transaction in the summer of 2012, pending necessary regulatory approvals.
“We are excited to announce this strategic acquisition,” says John Bryant, Kellogg Co. president and CEO. “Pringles has an extensive global footprint that catapults Kellogg to the No. 2 position in the worldwide savory snacks category, helping us achieve our objective of becoming a truly global cereal and snacks company. We are delighted to welcome the employees of the Pringles organization to Kellogg. Their collective passion and commitment has resulted in Pringles’ well-deserved acclaim as one of the most recognized brands in the world.”
P&G’s Chairman, President and CEO Bob McDonald says, “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. Kellogg shares similar values and principles to us and we are confident that the Pringles business will thrive under Kellogg’s leadership.”
Pringles is the world’s second largest player in savory snacks, with $1.5 billion in sales across more than 140 countries and manufacturing operations in the U.S., Europe and Asia. The stacked potato crisp has been a mainstay in supermarket snack aisles for more than four decades and is immediately identified by snack lovers worldwide by its unique saddle shape and distinct canister packaging, the release says. The Pringles business enhances Kellogg Co.’s existing production capabilities with the addition of two world-class manufacturing facilities, one in Tennessee and one in Belgium.
Details of the transaction
Kellogg Co. has agreed to pay P&G $2.695 billion in cash for the Pringles business. This is before significant future tax benefits.
As a result, Kellogg anticipates increasing its outstanding debt by approximately $2 billion, and expects to limit its share repurchase program to proceeds received by the company from employee option exercises for approximately two years to allow the company to reduce the increased levels of debt.
Kellogg Co.’s financial performance in 2012 will depend on several factors, including the exact date of closing. However, assuming the transaction closes on or around June 30, Kellogg expects that the transaction will:
• Be accretive to earnings in 2012 by between $0.08 and $0.10 per share before the impact of transaction and one-time costs and changes to the share repurchase program; including these items, the transaction will be dilutive to earnings per share in 2012 by between $0.11 and $0.16 per share;
• Generate one-time costs of between $160 and $180 million. The company expects that between $70 and $90 million of these costs will be recognized in 2012, a lesser amount in 2013, and the remainder in 2014; and,
• Generate synergies of at least $10 million in 2012, more in 2013 and ongoing synergies of between $50 and $75 million a year thereafter.
“Pringles is an exciting brand in a large and growing category,” Bryant says. “The addition of Pringles to our global cereal and snacks portfolio will provide an excellent return for stakeholders and better position us for future, profitable growth.”
The transaction is subject to customary conditions, including receipt of required regulatory approvals.
With 2011 sales of more than $13 billion, Kellogg Co. is the world’s leading producer of cereal and a leading producer of snacks and frozen foods.