By Anirban Sen
(Reuters) – Family-owned packaged food giant Mars, whose candy brands include M&M's and Snickers, is exploring a possible acquisition of Kellanova, maker of snacks such as Cheez-It and Pringles, according to people familiar with the matter.
A deal would be one of the largest ever in the packaged food sector, given Kellanova's market value of about $27 billion including debt, and would test regulators' appetite for allowing consolidation in the sector.
Kellanova shares have risen about 20% since it was spun off from WK Kellogg (NYSE:) Co last October, but they still trade at a discount to some of their peers, such as Hershey and Mondelez (NASDAQ:) International, making them a potential takeover target.
There is no certainty that Kellanova will reach a deal with Mars, the sources said. Another suitor could also approach Kellanova, and it is possible that no deal will be reached with either side, the sources added, asking not to be identified because the matter is confidential.
Kellanova declined to comment, while Mars spokespeople did not immediately respond to requests for comment.
Transactions in the packaged food sector have been strong as companies seek scale to withstand the impact of price inflation and weight-loss drugs weighing on demand.
Last year, JM Smucker acquired Twinkies maker Hostess Brands (NASDAQ:) for $5.6 billion, in a deal that brought together two major U.S. snack makers.
But many of the deals have been smaller than the mega-merger between Heinz and Kraft struck nearly a decade ago, as U.S. antitrust regulators have grown more concerned that such transactions lead to higher prices and fewer choices for consumers.
Food prices are expected to rise 25% between 2019 and 2023, faster than other consumer goods and services, according to recent statistics from the U.S. Department of Agriculture.
The Federal Trade Commission and the state of Colorado have sued to block grocery store operator Kroger's (NYSE:) proposed $25 billion acquisition of Albertsons (NYSE:), citing concerns that the deal would raise prices for millions of Americans.
A deal for Kellanova would be the largest in Mars' history, eclipsing its $9.1 billion acquisition of veterinary hospital operator VCA in 2017.
The McLean, Virginia-based company has sought to diversify its business through acquisitions. It is owned by descendants of founder Frank C. Mars and generates about $47 billion in annual sales. It operates under three divisions: Mars Petcare, Mars Snacking and Mars Food & Nutrition.
Kellanova manufactures its products in 21 countries and sells them in more than 180. After being spun off from W.K. Kellogg last year, Kellanova was left with snacks such as Pop-Tarts and Rice Krispies Treats, frozen breakfast foods such as Morningstar Farms and Eggo, and an international cereal division.
WK Kellogg, which has a market value of $1.5 billion, retained its North American cereal business, including Kellogg's cereals, Froot Loops, Frosted Flakes and Rice Krispies, under a licensing agreement it signed with Kellanova.
In May, Reuters reported that investment firm TOMS Capital Investment Management had acquired a stake in Kellanova and was in talks with the company on how to improve shareholder returns. Details of the talks between TOMS and Kellanova were not immediately available.
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