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.
- 1 Enrique Iglesias injured trying to catch a drone mid concert
- 2 Caitlyn Jenner, formerly Bruce Jenner, reveals new look on Annie Leibovitz shot Vanity Fair cover
- 3 Arsenal players boo chief-executive Ivan Gazidis after being told they would not get bonus for FA Cup triumph
- 4 Man on naked bike ride gets ejected after becoming aroused
- 5 UK weather: Temperatures set to soar making parts of Britain hotter than parts of the Mediterranean
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Why this year's general election was the most unfair in Britain's history
iJobs Money & Business
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...
£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...