Big Deal Takes Chips Off the Block
It looks like Procter & Gamble (NYS: PG) won't lose out due to another's misfortune.
After Diamond Foods (NAS: DMND) announced the ouster of its CEO and CFO and a restatement of two years' worth of earnings, P&G had to look for a new buyer for its tasty Pringles brand. After agreeing to sell the brand to Diamond last April for $2.3 billion, a new buyer has emerged with a little more money.
Food maker Kellogg (NYS: K) agreed Wednesday to purchase the last remnant P&G's food business in an all-cash deal for $2.7 billion, giving P&G a slight premium over the previously agreed-upon price. Kellogg will be able to add about $1.5 billion in annual sales to its snack business, which is currently led by Cheez-It crackers and Keebler cookies.
Kellogg ultimately expects Pringles to add $0.08 to $0.10 to its earnings per share next year, not counting the one-time costs of the acquisition. Though the deal will be for cash, Kellogg will add $2 billion in debt to its existing $5 billion in long-term debt. This should have minimal impact on the company going forward, which currently has around $3.2 billion in current assets, including $580 million in cash.
Who missed out
I failed to consider Kellogg as a player for Pringles recently, viewing Kraft (NYS: KFT) or PepsiCo's (NYS: PEP) Frito-Lay as more likely candidates. Without an entry in the chip segment, Kellogg has been losing market share and shelf space to its bigger competitors. Nevertheless, Kellogg becomes a serious player in the snack business, securing third place behind Frito-Lay and Kraft.
What it all means
Procter & Gamble was anxious to get out of the food business, and the sale to Kellogg indicates this. I thought they would hold onto Pringles in an attempt to maximize the value, but agreeing to sell the company merely a week after the announced breakdown at Diamond Foods was quite impressive. To keep an eye on the developments of the deal for Pringles, add Kellogg to My Watchlist.
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At the time thisarticle was published Fool contributorRobert Eberhardholds no position in any company mentioned. Follow him onTwitterorclick hereto see his holdings and a short bio. The Motley Fool owns shares of PepsiCo.Motley Fool newsletter serviceshave recommended buying shares of PepsiCo and Procter & Gamble and creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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