Kellogg sells cereal box maker

LOW & BONAR, the packaging and materials group, is to acquire a manufacturer of cereal cartons from Kellogg, the breakfast giant, for pounds 33.5m in cash.

The deal, which is financed by a pounds 50m rights issue at 265p a share, involves the purchase of Manchester-based Cereal Packaging, which supplies 85 per cent of Kellogg's UK packaging needs.

Low & Bonar said that the acquisition would complement its existing activities in folding cartons and create Britain's third-largest manufacturer in the sector.

Its subsidiary, Bonar Cooke Cartons, has been an important supplier to Kellogg for 50 years and owns plants in Manchester and Leeds.

Cereal Packaging has been run as part of Kellogg's UK business and as a result trading between the two companies has 'not necessarily taken place on an arm's length basis', Low said.

However, the buyer has entered into a long-term contract to supply Kellogg with a minimum number of cartons at prices that will be partly index-linked and reflect changes in raw material costs.

On this basis, Cereal Packaging's pro forma operating profits amounted to pounds 5.2m on sales of pounds 30m last year. The book value of the assets being acquired is pounds 8m.