Kellogg will buy Pringles-brand snack chips from Procter & Gamble for $2.7 billion after a previous deal with Diamond Foods fell through.
Kellogg will pay nearly $2.70 billion in cash and take on $2 billion in debt, which adds to the $5 billion it already has in long-term debt. The food giant is known globally for its cereal products, but is also known for its snack products.
The snack business is a growing industry with little private-label competition, and Kellogg forecasts the purchase to add 8-10 cents per share to its 2012 earnings.
Kellogg President and CEO John Bryant said: "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."
The company manufactures Cheez-It, Keebler and Special K cracker chips. Pringles is expected to bring in annual sales of $1.5 billion.
Once the deal is finalized, Procter & Gamble, the world’s largest consumer-products company, will no longer be in the foods business. It will continue to manufacture toiletries, diapers, laundry detergent and pet products.
P&G is expected to have an after-tax gain of $1.4 billion-$1.5 billion from the sale, and predicts the buyout will add $3.30-$3.43 a share to its 2012 earnings.
The deal could be complete by June 30.
Deal Broken With Diamond Foods
In April 2011, Diamond Foods signed a deal with P&G to purchase Pringles for $1.5 billion in stock, but the deal fell through earlier this month. The agreement was terminated after Diamond chief financial officer and CEO Michael J. Mendes was put on leave for improperly accounting for payments to walnut growers. The company will restate its past two years of earnings.
The termination was a mutual agreement and was announced Feb. 8. Had the deal gone through, P&G would have expected a gain of 55-65 cents a share.
Diamond Foods manufactures Pop Secret, Kettle chips and Emerald snack nuts.
Key Facts - Global Snack Food Market (source: Global Industry Analysts)
- By 2015, it is predicted the global snack foods market will reach close to $335 billion.
- Over the next few years, the global snack foods market will be driven by improvements in the taste and flavor of products.
- The most growth opportunities in the world snack food market will come from Asia-Pacific, which has lowere import restrictions as well as a higher population density.