Kellogg’s buys up Pringles for $3bn
CEREALS giant Kellogg Company moved closer to becoming the largest snacks company in the world yesterday when it agreed to pay $2.7bn (£1.7bn) to buy potato chips maker Pringles.
The deal ends months of uncertainty for vendor Procter & Gamble as a planned sale to popcorn maker Diamond Foods finally fell through amid a scandal over the accounting of $80m of payments to walnut farmers.
Kellogg’s acquisition will triple the size of its snack sales, leaving it second only to PepsiCo’s Frito-Lay in the savoury snacks market.
Kellogg chief executive John Bryant said Pringles would be “centre plate” for his company, seen as a contrast to P&G, which had long wanted to leave the food sector after selling off Folgers coffee and Jif peanut butter.
Bryant said: “Pringles has an extensive global footprint that catapults Kellogg to the number two position in the worldwide savory snacks category, helping us achieve our objective of becoming a truly global cereal and snacks company.”
He also left the door open to a bid for Diamond or some of its brands, which include Kettle potato chips and Pop Secret popcorn, when he admitted a move would now make more strategic sense.
“They’re clearly a fit in the portfolio. You could say our ability to do bolt-on acquisitions has probably expanded with the addition of this business.”
Pringles turns over $1.5bn and sells in around 140 countries.
About 1,700 P&G staff will move to Kellogg, which makes Special K and Rice Krispies. The cereal firm will borrow $2bn to complete the deal and expects to limit its share repurchase programme for about two years.
The deal, due to complete in the summer, will generate one-off costs of between $160m and $180m for Kellogg but the firm also said savings will start at $10m this year, rising to a higher figure in 2013 and then hitting between $50m and $75m a year.
It will add eight to 10 cents per share to earnings in 2012 and 22 cents to 25 cents in 2013, excluding one-time costs and the impact of reduced buybacks, Kellogg said.
Yesterday P&G called off the planned $2.35bn sale of Pringles to Diamond, which had been in doubt since November when the suitor announced a probe over payments to walnut growers in California.
Last week Diamond, the maker of Kettle crisps and Emerald nuts, replaced chief executive Michael Mendes and chief financial officer Steve Neil and said it would restate its earnings for the last two years.
Diamond said it would not have to pay any break-up fee over the Pringles deal, sending its shares up by nearly five per cent.
P&G said its sale of Pringles would lead to an after-tax gain of $1.4bn to $1.5bn, or 47 cents to 50 cents per share, about the same amount estimated when it first announced the deal with Diamond in April 2011.
The Cincinnati firm is the world’s largest manufacturer of household goods. It now wants to focus mainly on beauty and personal care products such as its Head & Shoulders shampoo.
Three years ago it achieved notoriety in Britain when it was ordered to pay out tens of millions of pounds in VAT after losing a long legal battle with the Inland Revenue. The Court of Appeal ruled that Pringles are a potato snack – not a general foodstuff – making them liable for the sales tax.