Kellogg Company announced today that they would buy Pringles brand from Proctor Gamble for $2.695 billion. This move comes after Kellogg’s said they were trying to expand their global snack brand to compliment its cereal business. Kellogg’s has been in the snack business for over decade with its purchase of Keebler.
Analysts say that Pringles is a good fit for Kellogg’s because Pringles is a worldwide brand that goes well with its other popular snacks such as Cheez-It and Special K crackers. Pringles will give Kellogg’s a strong boost in growth numbers in the US and internationally. The good news is that Pringles already have a presence internationally making it easier to just focus on growth rather than promoting. “Pringles has an extensive global footprint that catapults Kellogg to the number two position in the worldwide savory snacks category, helping us achieve our objective of becoming a truly global cereal and snacks company…” says Kellogg’s President and CEO John Bryant.
Proctor and Gamble’s Chief Executive, Bob McDonald commented on the deal saying that Kellogg’s and P&G have similar values in business and the deal would create value shareholders on both sides. Pringles themselves created $1.5 billion in sales across 140 countries.
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Kellogg’s believes that acquisition, costs involved, and share repurchase programs will weaken earnings per share by $0.11 to $0.16 in 2012. Kellogg’s believes the deal will come with onetime costs of $160 million to $180 million. However, executives believe that about $70-90 million will be realized in 2012.
Although the costs associated with the Pringles acquisition could take a toll on Kellogg’s balance sheet and earnings this year, next year should be a very good year as the costs will mostly be paid off and the benefits will begin to kick in. Ultimately I believe this is a great deal for both sides. Kellogg’s gets a world class brand that could yield big gains for the company over the long term. Also, this deal would make Kellogg’s number two in the snacks department. For Proctor and Gamble, they are slimming down and focusing on a smaller product line to cut costs and maximize earnings. Pringles is a great brand but it is expensive to maintain. Kellogg’s is better positioned to absorb costs and maximize the full potential of Pringles. Kellogg’s is a great value play and a safe investment for someone with a long term view.