Kellanova shares surge by 16%

(Image credit: SOPA Images / Contributor)

Shares in Pringles and Pop Tarts maker, Kellanova, surged by 16% this week after it was reported that confectionery, food and pet care conglomerate Mars is preparing to buy it. That would be “one of the year’s biggest takeovers”, says the Financial Times.

Mars is one of the world’s largest privately held companies, with annual sales of more than $50 billion and more than 150,000 employees. The news also comes as Kellanova has “appeared to weather the slowdown in US consumer spending”, raising its full-year sales forecasts last week after its latest earnings “surpassed expectations”. The shares had gained 15% this year before the bid.

Should you buy Kellanova shares?

Buying Kellanova makes sense, say Crystal Tse and Deena Shanker on Bloomberg. It would give Mars “a greater variety of food labels including Pringles, Cheez-It and Pop Tarts”. It would also help Mars diversify its “chocolate-heavy brand portfolio” away from cocoa, “a commodity whose prices have spiked to historic levels this year and whose outlook remains uncertain”.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Kellanova would also help Mars fight back against “declining volumes, slowing growth and a weakening global consumer”. While there are other potential acquirers, including Mondelez International, a purchase by Mars would face less regulatory scrutiny as Mars has less overlap with Kellanova than other brands.

The financial logic of the deal “can just about work, too”, says Jennifer Saba on Breakingviews. There could be nearly $1 billion of synergies. However, the timing “may seem odd”, as Procter & Gamble, McDonald’s and even Amazon have noted that shoppers “are becoming much more discerning on price”.

Meanwhile anti-obesity drugs from Novo Nordisk, Eli Lilly and others “threaten consumption of empty-calorie treats”. Still, “if the market is getting tougher, bulking up to take a bigger piece of it is a textbook defence”.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.