My Mistake, You Want Some of My Pringles?
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Progress Report: PepsiCo (NYSE: PEP), mentioned 2/9/12 around $64 per share, currently trading around $63.50 (intraday, 2/15/12).
I hate losing more than I hate being wrong. Making a mistake is part of the makeup of us as human beings. Actually owning those mistakes and accepting responsibility for them, learning from them and moving on is quite another thing entirely. I recently suggested that Pepsi was worth a look after some potential pullback following their earnings call (“Got 401K? Part III – in 3D”).
In a former trading life I once owned Pepsi. I had read a nice article about their CEO, Indra Nooyi, I checked out some delightfully colorful charts, and I felt comfortable establishing a relationship with the company based on my homework, the CEO’s vision (not to mention her cool last name), and the business model, despite being a devout Diet Coke consumer. But situations arise in the everyday lives of family guys, and the liquidity was needed more than the potentially bountiful presence of Pepsi in my portfolio. We broke up years ago, but I still sneak a look every so often.
Now I happen to enjoy merger and acquisition news. I think it’s perfectly healthy in a capitalist society for companies to acquire one another, make beautiful music together, or even buy each other’s spare parts from a Wall Street yard sale every now and then. But there are more than two sides when it comes to M&A news, and I don’t think this one is going to make life any easier for Pepsi.
Kellogg Company (NYSE: K), is buying the Pringles business from Procter & Gamble (NYSE: PG), for $2.7 billion in cash. Now I think I have made it abundantly clear how often I yawn for every 5-cent move in either direction Procter moves. But the company offers a 3.3% dividend yield and that’s great for loyal shareholders as long as they aren’t expecting Apple-like moves in a given quarter, much less one day. The deal makes sense for both companies, as Kellogg is in the overly crowded neighborhood of breakfast cereals. Wake up, I know. And Procter is in, well, just about anything from diapers to shampoo. But adding some neglected P&G snacks gives Kellogg some exposure into the snack food industry, and maybe they can give the Pringle some much needed pop with their focus on the newly acquired chips.
Pepsi has their own challenges besides the horrible aftertaste it leaves on my pallet, not the least of them Kellogg, as they constantly have to come up with snappy advertising to try and scrounge whatever market share Coca-Cola (NYSE: KO), leaves for them. So now with Kellogg making plans to utilize their new power tool, Pringles, on snack food shelves, the Frito Lay division of Pepsi will certainly have to keep a close watch on the possible rebirth of the domestically dormant chip.
Both Pepsi and Kellogg offer dividend yields over 3%, and both are officially still on the watch list, but I think I may have possibly made a mistake with Pepsi given the recent news, which makes me think Kellogg might have some room to run even after the 5% move up in share price after the acquisition announcement.
Motley Fool newsletter services recommend The Coca-Cola Company, PepsiCo and The Procter & Gamble Company. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. kmet312 has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.