Kellogg Nets a Tasty Deal
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Warning: Don't read the following on an empty stomach... you may end up with the munchies.
In a move that has already started a feeding frenzy on Wall Street, Kellogg Company (NYSE: K) has agreed to buy chip-maker Pringles from Procter & Gamble Co. (NYSE: PG). Kellogg, producer of Keebler cookies, Eggo waffles and a variety of other snacks and breakfast items, will pay $2.7 billion for the chip company. Once the purchase is complete, Kellogg will be second only to PepsiCo Inc. (NYSE: PEP) in the snack market.
Procter & Gamble had previously attempted to sell Pringles to Diamond Foods Inc. (NASDAQ: DMND), best known for its Diamond of California brand nut products but also the producer of Pop Secret popcorn, Kettle-brand chips and Emerald brand snack nuts, though an accounting scandal purportedly ended up killing the deal. Diamond Foods released a statement on February 15th detailing the mutual agreement to terminate that purchase which resulted in Kellogg stepping in, though specific details were kept at a minimum. Of course, the rumor mill started circulating almost immediately that Diamond Foods could be the next purchase on Kellogg's shopping list, though the only comments made by either company regarding that rumor was a statement by Kellogg CEO John Bryant saying that Diamond Foods was "clearly a fit in the [Kellogg] portfolio."
Whether or not Kellogg hopes to add Diamond Foods to its shopping cart, the Pringles purchase will give the company leverage in a portion of the snack isle where its holdings are decidedly sparse. While the company produces everything from Special K to Disney Fairies fruit-flavored snacks, the company doesn't produce any potato chip varieties. Despite slowing sales, Pringles chips have instant brand recognition in over 100 countries and could see a significant revival with the power of the Kellogg Company behind the wheel.
While Diamond Foods is obviously feeling the sting from the loss of this major acquisition, the new diversity should do wonders for Kellogg. With its cereals and other breakfast products fighting against brands from General Mills Inc. (NYSE: GIS), private label cereals and store brands, competition in breakfast foods can be fairly stiff. The chip aisle is less crowded and not counting store brands there's only one major competitor: PepsiCo's Frito-Lay. Given the existing popularity of Pringles and the fact that it's been facing off against Frito-Lay's offerings for decades, this should leave Kellogg plenty of room to savor the sweet flavor of success.
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