Kellogg to Buy Pringles From P&G for $2.7B

Kellogg to Buy Pringles From P&G for $2.7B


Kellogg Co. (K) agreed to acquire Procter & Gamble Co.’s Pringles potato chip business for about $2.7 billion in cash to bolster its snacks offerings after a deal with Diamond Foods Inc. (DMND) fell through.
The transaction will reduce Kellogg’s earnings this year by as much as 16 cents a share, the Battle Creek, Michigan-based company said today in a statement. Procter & Gamble earlier today terminated a previous plan to sell Pringles to Diamond Foods, according to a separate statement.
The purchase gives Kellogg the world’s second-largest maker of savory snacks, with more than $1.5 billion in sales in 140 countries. Kellogg Chief Executive Officer John Bryant said the deal will triple the company’s global snacks business and has potential to expand in Latin America.

“This is a great business that helps us create an even better global snacks business,” Bryant said in a phone interview today. “This is an irresistible asset at a good price. So we moved very quickly.”
Kellogg rose 3.4 percent to $52 at 8:03 a.m. in New York. P&G fell 0.2 percent to $64.38. Diamond gained 2.9 percent to $22.95.
The purchase would be the largest in the U.S. diversified foods industry since Nestle SA acquired Kraft Foods Inc.’s (KFT) North American pizza business for $3.7 billion two years ago, according to data compiled by Bloomberg.
Deal Collapsed

Diamond Foods had previously agreed to buy Pringles for $1.5 billion in stock and the assumption of $850 million in debt. The deal collapsed after Diamond Foods last week replaced its chief executive officer and restated earnings for the past two years after the board found payments to walnut growers had been booked in the wrong periods.
The deal would value Pringles at about 11 times earnings before interest, taxes, depreciation and amortization. In 66 comparable deals globally since 2007, the median paid by buyers was about 7.6 times Ebitda, Bloomberg data show. There have been almost 1,000 transactions in diversified foods in the past five years, led by Cadbury Plc’s 2010 purchase of Kraft Foods Inc. for more than $20 billion.
Once it appeared that the Diamond deal could fall apart following the conclusion of an internal investigation last week, Kellogg moved quickly, Bryant said.

“We are always looking for acquisitions,” Bryant said.
Bryant said Kellogg will issue new debt for the acquisition. Barclays Plc (BARC) advised the company on the deal, he said.
The purchase is expected to be completed later this year. P&G, based in Cincinnati, said it expects an after-tax gain in the range of $1.4 billion to $1.5 billion, or 47 cents a share to 50 cents a share, according to the statement.

source: bloomberg.com