By Anirban Sen
(Reuters) -Family owned packaged food giant Mars, whose candy brands include M&Ms and Snickers, is exploring a potential takeover of Kellanova, maker of snacks such as Cheez-It and Pringles, according to people familiar with the matter.
A deal would be one of the largest ever in the packaged food sector, given Kellanova’s market value of about $27 billion including debt, and would test regulators’ willingness to allow consolidation in the sector.
Kellanova’s shares are up about 20% since its spin-off from WK Kellogg (NYSE:) Co last October, but are still trading at a discount to some of its peers, such as Hershey and Mondelez (NASDAQ:) International, leaving it a potential acquisition target.
There is no certainty that Kellanova will pursue a deal with Mars, the sources said. Another suitor could also approach Kellanova, and a deal may not be reached with either party, the sources added, requesting anonymity because the matter is confidential.
Kellanova declined to comment, while Mars spokespeople did not immediately respond to requests for comment.
Deals in the packaged foods sector have been robust as companies seek scale to weather the impact of price inflation and weight-loss drugs weighing on demand.
Last year, JM Smucker acquired Twinkies maker Hostess Brands (NASDAQ:) for $5.6 billion, in a deal that united two major U.S. snack makers.
But many of the deals have been smaller than the mega-merger between Heinz and Kraft that closed nearly a decade ago, as U.S. antitrust regulators have grown more concerned about such transactions leading to higher prices and fewer choices for consumers.
According to recent statistics from the U.S. Department of Agriculture, food prices increased 25% between 2019 and 2023, faster than other consumer goods and services.
The Federal Trade Commission and the state of Colorado have filed a lawsuit to block supermarket operator Kroger’s (NYSE:) proposed $25 billion acquisition of Albertsons (NYSE:) over concerns that the deal could lower prices for millions of Americans. would increase.
A deal for Kellanova would be the largest ever for Mars, eclipsing its $9.1 billion acquisition of veterinary hospital operator VCA in 2017.
The McLean, Virginia-based company is trying to diversify its business through acquisitions. It is owned by the descendants of founder Frank C. Mars and generates annual revenues of approximately $47 billion. It operates under three divisions; Mars Petcare, Mars Snacking and Mars Food & Nutrition.
Kellanova manufactures its products in 21 countries and markets them in more than 180 countries. The separation from WK Kellogg last year left Kellanova with snacks such as Pop-Tarts and Rice Krispies Treats, frozen breakfast products such as Morningstar Farms and Eggo, and an international cereal division.
WK Kellogg, which has a market value of $1.5 billion, retained its North American cereal businesses, including Kellogg’s, Froot Loops, Frosted Flakes and Rice Krispies cereals, under a licensing agreement it entered into with Kellanova.
Reuters reported in May that investment firm TOMS Capital Investment Management had taken a stake in Kellanova and was discussing with the company how it can improve shareholder returns. The details of the conversations between TOMS and Kellanova could not be determined.
