Kellogg's crisps up its bottom line by snapping up Pringles
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Thursday 16 February 2012
The cereals giant Kellogg hopes to add some more snap, crackle and pop to its financial results with the acquisition of Pringles.
The $2.7bn (£1.7bn) deal adds the famous tubes of saddle-shaped crisps into a portfolio that includes Kellogg's Corn Flakes, Rice Krispies, Special K and Cheez-It crackers. Pringles brings in revenues of about $1.5bn, tripling the size of Kellogg's non-cereal snacks division and adding 1,700 employees.
At a stroke, Kellogg becomes the number 2 snack company in the world, after PepsiCo's Frito-Lay, which owns Walkers Crisps.
The company got a second chance to buy Pringles after the current owner, Procter & Gamble, pulled out of a deal to sell to Diamond Foods, which has become embroiled in an accounting investigation and signalled last week that it was not in a position to follow through on the acquisition.
Ken Perkins, an analyst at Morningstar, said Pringles faced intense competition from other crisps businesses, but that intense competition was a fact of life.
"Pringles will be Kellogg's second-largest brand and give the firm a greater presence in the global snack category," Mr Perkins told clients. "Kellogg has recently faced fierce competition in its cereal business, and we are not surprised by its decisive efforts to strategically expand its global snack portfolio."
Pringles were created by P&G in 1968, when they were known as "Pringles Newfangled Potato Chips".
Kellogg estimated it could cut $50m to $75m in costs out of the combined businesses, and said Pringles would add to the group's earnings from 2013.
It will borrow $2bn to complete the deal and expects to limit its share repurchase plan for about two years. John Bryant, Kellogg's chief executive, said the cost was worth it to get his hands on "one of the most recognised brands in the world".
P&G's deal last year to sell Pringles to Diamond valued the business at $2.35bn, but while Kellogg is paying more, P&G will actually receive less because a different financial structure means it will receive almost 50 per cent of the proceeds in cash.
P&G shares were up 4 per cent on the New York stock exchange yesterday on relief that it will finally be rid of its last remaining food business, allowing it to concentrate on its other blockbuster brands which range from Ariel washing liquid to Duracell batteries and Gillette shaving products.
Peaches Geldof cause of death: 'Heroin addict' socialite had taken fatal dose of drug, inquest concludes
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned
Students offered grants if they tweet pro-Israeli propaganda
Israel-Gaza conflict: Israel may have committed war crimes, says UN human rights chief
Peaches Geldof inquest: Tragic final moments of socialite's life reveal she lied to husband about failed heroin tests
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
iJobs Money & Business
£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...
£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...
£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...
£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...