- Ferrero and Hostess Brands submitted their final offers for Kellogg's Keebler, Famous Amos and fruit snacks businesses last week, sources familiar with the deal told CNBC.
- Although they are not the only contenders in the deal, Ferrero and Hostess are reportedly leading the pack to purchase these legacy brands. The deal is valued at $1.5 billion.
- This deal marks a sharp decline in valuation of Keebler, which Kellogg acquired in 2000 for $3.86 billion.
Of the three well-placed initial offers for Kellogg’s cookies and fruit snacks, only two remain. B&G, a serial acquirer with a track record of turning brands’ fortunes around, has dropped out of the race. While there has been no public comment on the matter, likely the Green Giant owner bowed out due to its market cap valuation of $1.6 billion being insufficient to shoulder the burden of a $1.5 billion purchase without going into debt.
The price tag for this deal also has Hostess Brands, whose market cap is $1.2 billion, getting creative with purchasing possibilities. According to sources familiar with the deal, the CPG giant is considering a special deal type where one company spins off part of its business to merge it with another, smaller company, potentially as a tax-free transaction.
Both Hostess and Ferrero are eyeing the territory Kellogg’s is ceding as they look to push deeper into the sweets and treats market. Hostess already has decades of experience marketing sweets with its Twinkies and Ho-Hos brands, while Ferrero — the longtime owner of Nutella — became the third-largest confectionery company in the U.S when it purchased Nestlé’s U.S. candy business for $2.8 billion last year.
The fact that both companies are looking to take a larger stake in indulgent CPG products is an indication of their confidence in the growth of the sector. Although fresh, healthy and better-for-you products have been dominating shelves in recent years, indulgent and comforting foods have begun to see a resurgence, especially in the snack space. Kellogg has been responding to this trend by pouring sugar on their cereal offerings in an effort to sweeten those sales.
While Kellogg’s is looking to jettison cookies and snacks, Ferrero could benefit from the positioning it offers, an analyst told Food Dive.
"Given the global nature of Ferrero and its products, the Keebler acquisition would likely expand it’s USA footprint for its existing products, while at the same time potentially taking Keebler’s brands into global markets it predominantly occupies," Jonathan Treiber, CEO of offer management software platform Revtrax, told Food Dive in an email.
For Hostess, it would mean an opportunity to branch out of cakes and into other sweet treat categories that resonate with consumers. These Kellogg brands are iconic, so the public familiarity may mean lower marking expenses, even if some of the products are completely reimagined.
Although there is potential left for the cookie and snack brands, Kellogg’s new focus on the core breakfast, snacks and frozen foods that make up 80% of Kellogg's North American revenue will allow the company to make the required "big investments and major changes to get our business back on track," Chris Hood, the president of its North American division, told attendees at the Consumer Analysts Group of New York conference in February.
Kellogg is not alone in this strategy. Campbell Soup is shedding its Arnott's business as it works to pay down the debt left in the wake of its $6.2 billion acquisition of Snyder's-Lance last year. Kraft Heinz is considering a sale of its Breakstone’s and Maxwell House brands. Likewise, Conagra, which acquired Pinnacle Foods last summer, is exploring divestitures, and recently completed the sale of Wesson Oil to Canadian agribusiness Richardson International.
Treiber told Food Dive no legacy brand is safe for divestiture.
"There will likely be some large divestitures from Nestle, General Mills, Kraft-Heinz and others who are looking at rebalancing their portfolios with an eye towards growth and are willing to sacrifice revenue scale in the short term for future growth upside," he said.
After years of cost-cutting their way to growth, this rash of divestitures shows that there is a new strategy in town for the CPG giants. But the manufacturers rumored to be in the running to purchase them could bring some interesting possibilities. If mashups of these brands become a part of the strategy to generate demand, there could be some delicious combinations in store, like Famous Amos candy bars, Famous Amos Twinkies, Butterfinger-flavored Keebler cookies, or a Nutella spread with Famous Amos cookie crumbles.