UPDATE: July 29, 2019: Kellogg and Ferrero announced the sale closed.
- Kellogg is selling selected cookies, fruit and fruit-flavored snacks, pie crusts and ice cream cones to Ferrero for $1.3 billion, the cereal maker said in a statement. The sale includes brands such as Keebler, Mother's, Famous Amos and cookies manufactured for Girl Scouts of the U.S.A.
- In 2018, the businesses being sold posted net sales of nearly $900 million and operating profit of approximately $75 million, Kellogg and Ferrero said. The transaction is expected to close by the end of July.
- "This divestiture is yet another action we have taken to reshape and focus our portfolio, which will lead to reduced complexity, more targeted investment and better growth," Steve Cahillane, Kellogg's chairman and chief executive officer, said in a press release. "Divesting these great brands wasn't an easy decision."
The acquisition by Ferrero — best known for its Nutella spread, Tic Tac breath mints and Ferrero Rocher candies — is the latest push by the company to expand its U.S. footprint.
In 2017, the Italian candy maker purchased Ferrara Candy — the maker of Brach's, RedHots and Trolli — from private equity company L Catterton. Then last year, it spent $2.8 billion to acquire the U.S. candy operations of Nestlé, making it the third-largest confectionery company in the country. The deal added more than 20 American candy brands to the fold — including Butterfinger, Baby Ruth, 100 Grand, Raisinets, Wonka, SweeTarts, LaffyTaffy and Nerds, as well as the exclusive right to the Crunch brand.
Now Ferrero appears to be making its first foray into cookies and snacks with its purchase of the Kellogg division.
"Kellogg Company’s cookie, fruit snack, ice cream cone and pie crust businesses are an excellent strategic fit for Ferrero as we continue to increase our overall footprint and product offerings in the North American market," Giovanni Ferrero, executive chairman of the Ferrero Group, said in a statement.
It's evident that Ferrero is aiming to be a bigger player in the sweets and snacks space, joining well-known companies like Mars, Hershey and Mondelez in the competition for a share of the consumer's wallet. The larger scale it has amassed will give it more heft when it comes to purchasing ingredients, manufacturing synergies, transportation and negotiating power with retailers that carry its products.
Ferraro has shown a keen ability to take a patient and measured approach in making changes to brands it acquires. In February, a revamped Butterfinger hit the shelves with higher-quality ingredients — like jumbo peanuts in the bar — as well as a higher percentage of cocoa and milk in the chocolate coating. At the same time, Ferrero is cutting ingredients including the preservative TBHQ and hydrogenated oils.
Jeff Robards, head of the Consumer Foods group at the investment bank Alantra, said Ferrero has been looking to grow in the U.S. by purchasing established brands that have" grown tired under current ownership, but that represent an opportunity for rejuvenation."
Once the Kellogg deal closes this summer, Ferrero will likely take time to assess how to refresh and integrate brands that already are known by consumers and are market leaders in their respective categories. Ferrero could later decide to improve the perceived quality of the brand like it did with Butterfinger, or find ways to incorporate products it already has into the newly acquired items — like a Nutella-flavored Famous Amos cookie.
For Kellogg, the long-awaited divestiture marks another step in its plan to streamline its portfolio to jettison slow-growing or under-invested brands. Currently, its core breakfast, snacks and frozen food operations make up 80% of Kellogg's North American revenue. The $1.3 billion in cash Kellogg receives from Ferrero could go a long way to paying down debt, reinvest in its existing brands or making an acquisition in a fast-growing space more in tune with changing consumer trends — much like its $600 million purchase of RXBAR in 2017.
"We need to make strategic choices about our business and these brands have had difficulty competing for resources and investments within our portfolio," Cahillane said in November when Kellogg announced it was exploring a sale of its cookie business. "Yet, we wholeheartedly believe these iconic and beloved brands can thrive in the portfolio of another organization that can focus on driving growth in these particular categories."
Big food companies in need of a revenue jolt have overhauled portfolios by adding faster-growing brands and products that are more relevant to today's shopper. In addition to Kellogg, Kraft Heinz is reportedly looking to sell household staples like Maxwell House and Breakstone's, which makes cottage cheese, butter and sour cream. And Campbell Soup is also selling off some of its cookie and biscuit brands in a deal that is rumored to be on the verge of being announced.
B&G Foods and Hostess Brands were reportedly among the companies looking to acquire the Kellogg operation, but privately held Ferrero, which had 2017 sales of $12.5 billion, has shown evidence of being able to reinvigorate classic brands such as Butterfinger. Now it will have a chance again once this sale to Kellogg closes later this year.