Acquisition Could See Cheez-It and Pringles Owner Make a Mars Landing

As with Pringles, once a stock pops, you just can’t stop selling. 

Snack maker and Pringle-owner Kellanova, formerly known as Kellogg’s, popped 16% on the NYSE Monday, following a Reuters report that said it’s an acquisition target for privately-held confectionary giant Mars. Yesterday, you may have noticed, wasn’t an especially good day for markets, either.

A Crisp Pairing

Kellanova, which broke off from WK Kellogg last year, has a stable of high-profile, high-calorie brands including Pop-Tarts, Rice Krispies Treats, and Eggo waffles. Last week, the company reported net income of $493 million and revenue of $3.2 billion — both ahead of FactSet consensus estimates — and hiked its 2024 guidance a half-percentage point to 3.5% sales growth.

After Monday’s pop, it’s trading at about 27 times its earnings, in line with the current S&P 500 average. But dealmaking in the packaged food sector is brisk — J.M. Smucker bought Hostess for $5.6 billion last year; Campbell Soup bought Rao’s Homemade owner Sovos for $2.3 billion this year — and CNBC reported that Hershey, Mondelez, and PepsiCo could also size up Kellanova. The incentives for sector consolidation are clear: 

• Food prices were up 25% from 2019 to 2023, the Department of Agriculture said earlier this year, well ahead of core inflation. In March, 64% of consumers said in a Purdue University survey that they expect food prices to keep rising into 2025.
• In May, BMO Capital Markets hiked its estimate of annual weight-loss drug sales to $150 billion by 2033, up from $100 billion. Morgan Stanley analysts estimate US consumption of soft drinks and sweet and salty snacks could fall as much as 4% by 2035, when as much as 9% of the country’s population may be taking obesity drugs.

Astronomical: An acquisition by Mars, which is still owned by the family of founder Frank C. Mars and said it made over $50 billion in sales last year, would likely dwarf its previous biggest takeover — a $9.1 billion acquisition of veterinary hospital operator VCA in 2017 — like the planet Jupiter dwarfs the family name: Kellanova’s market cap is $25 billion. That’s like a whole Snickers bar versus a single M&M.