In a move to concentrate on reshaping and revamping its brand portfolio, Kellogg Co. (K, Financial) announced on Monday it is selling its cookie and fruit snacks businesses to Italian confectioner Ferrero Group for $1.3 billion.
The divestiture, which was announced last November, represents a portion of Kellogg’s North American snacking business, encompassing cookie brands Keebler, Mother’s, Famous Amos, Murray’s as well as Little Brownie Bakers, which is one of the producers of the Girl Scouts’ popular cookies. It also includes its fruit and fruit-flavored snacks, pie crusts and ice cream cone divisions. Together, the businesses generated nearly $900 million in sales and $75 million in operating profit in 2018.
In a statement, Kellogg Chairman and CEO Steve Cahillane said the sale of these divisions will lead to “reduced complexity, more targeted investment and better growth.”
"Divesting these great brands wasn't an easy decision, but we are pleased that they are transitioning to an outstanding company with a portfolio in which they will receive the focus and resources to grow," he added.
Now the company known for its Frosted Flakes, Rice Krispies and Special K cereals will focus on beefing up its remaining, fast-growing snack brands, which include Cheez-Its crackers, Pringles chips, Rice Krispies treats and Pop-Tarts toaster pastries.
Beating out Hostess Brands Inc. (TWNK, Financial) for the Battle Creek, Michigan-based company’s cookie business, the acquisition is the latest in a string of deals for Ferrero. Over the past two years, CNBC columnist Lauren Hirsch reported it has also bought Ferrara Candy Co. for $1 billion and Nestle’s (XSWX:NESN, Financial) U.S. candy business for $2.8 billion, adding the Brach’s, Butterfinger, Crunch and SweeTarts brands, among others, to its portfolio.
According to the terms of the agreement, Ferrero, which produces Nutella, Tic Tacs, Kinder Chocolate and Mon Cheri products, will also gain six U.S. food manufacturing facilities and a leased manufacturing plant in Baltimore.
In a separate statement, Ferrero Executive Chairman Giovanni Ferrero said the businesses are “an excellent strategic fit” for the company as it continues to expand in North America.
“We have great respect for Kellogg, its legacy and values, and are proud that Kellogg has chosen Ferrero as a good home for these businesses,” he added.
Ferrero CEO Lapo Civiletti also expressed his excitement for the deal.
“We are acquiring a portfolio of well-established brands that consumers love, with very strong market positions across their respective categories, allowing us to significantly diversify our portfolio and capitalize on exciting new growth opportunities in the world’s largest cookies market,” he said.
The all-cash deal is expected to close by the end of July.
With a market cap of $19.46 billion, shares of Kellogg were down 1.32% on Monday morning at $56.63 following the announcement. After declining 16% in 2018, GuruFocus estimates the stock has fallen an additional 1% year to date.
Of the gurus invested in Kellogg, Pioneer Investments (Trades, Portfolio) has the largest stake with 0.69% of outstanding shares. Other guru shareholders are Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Richard Pzena (Trades, Portfolio), Hotchkis & Wiley, the T Rowe Price Equity Income Fund (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), John Hussman (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Robert Bruce (Trades, Portfolio) and Mairs and Power (Trades, Portfolio).
Disclosure: No positions.
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