M&A - It’s time to merge breakfast cereals with some crisps

A new takeover has been announced this morning and its one that many students researching takeovers and mergers might want to use a topical case study. For many, the products involved will be close to their hearts…

Multinational Kellogg Co has announced that it will buy the Pringles potato chip brand from fellow multinational Procter & Gamble Co for $2.7 billion in cash. Kellogg said that it would borrow $2 billion to complete the deal.

Whilst best-known for its breakfast cereals, Kellogg has a much broader and extensive product and brand portfolio. It is a producer of cereal and convenience foods, including cookies, crackers, cereal bars, fruit-flavored snacks, frozen waffles, and vegetarian foods. Kellogg products are manufactured in 18 countries and marketed in more than 180 countries around the world.

The details of the takeover are described in this announcement to Kellogg shareholders The announcement is well worth printing off and reading through as it contains some key terms and concepts which are relevant for students building their understanding of takeovers and mergers.

For example, the rationale of the takeover is described thus: [my emphases are in bold]

Pringles is an excellent strategic fit for Kellogg Company. It significantly advances the company’s goal of building a global snacks business on par with its global cereal business.

Amongst the key features of the takeover, the Board of Kellogg point to:

- Pringles’ brand strength and consumer appeal fit well with Kellogg Company’s core strengths in brand-building and innovation, adding a complementary product to its high-quality snacks brands, most notably Keebler, Cheez-It and Special K Cracker Chips.

- In the U.S., the acquisition provides a new source of growth for the company’s already strong presence in the snacks category.

- Internationally, Pringles provides a strong brand and an established platform from which Kellogg can more aggressively leverage its brands in the international snacks category.

- Kellogg will benefit from the collective expertise of more than 1,700 talented Pringles employees. The similar heritage, culture and values of Kellogg and P&G are expected to facilitate a smooth transition

Finally, the announcement also refers to the potential synergies involved in the takeover. Here’s what is says: the takeover will…

Generate one-time costs of between $160 million and $180 million. The company expects that between $70 million and $90 million of these costs will be recognized in 2012, a lesser amount in 2013, and the remainder in 2014.

Generate synergies of at least $10 million in 2012, more in 2013 and ongoing synergies of between $50 million and $75 million a year thereafter.

So, what do you think of the deal?