Mom Brands Becomes Just Another Part of a Big Company
Post Holdings (POST) -- the packaged foods conglomerate responsible for such cereal offerings as Grape Nuts, Honeycomb and Honey Bunches of Oats -- expanded its portfolio by one more cereal brand last month. Its $1.15 billion purchase of privately owned cereal maker Mom Brands ended the 95-year history of one of Minnesota's oldest family-owned companies, and one of the rising stars of the natural foods movement.
New World Order (of Food)
Not everyone's thrilled with this development. Last week, a coalition of consumer advocates groups urged the Federal Trade Commission and states' attorneys general to investigate this merger, arguing that if Post is allowed to swallow Mom, "the four largest firms [will sell] nearly 90 percent of all cereal" in the U.S. The situation's even worse than that, though.
Currently, just 10 big food companies (collectively, let's just call them "Big Food") own essentially all the brands of soda, cereal, cookies, crackers, soaps, shampoo, cosmetics and cat food -- really, everything you buy at the grocery store in an ordinary week. Their names:
- Coca-Cola (KO).
- General Mills (GIS).
- Johnson & Johnson (JNJ).
- Kraft (KRFT).
- Kellogg (K).
- Nestle (NSRGF)
- Unilever (UL).
- PepsiCo (PEP).
- Procter & Gamble (PG).
Mom Was One Sharp Cookie at the Grocery Store
Despite its small size, "Mom" (which adopted this family-friendly moniker in 2012 -- perhaps realizing that its old name, "Malt-O-Meal" sounded a bit too 1920s), had been a bit of a thorn in the side of Big Food. Mom's claim to fame, you see, was putting out "look-alike" cereals that stole sales from larger cereal makers. For example:
- Kellogg's Frosted Mini-Wheats became Mom's "Sweetened Wheat-fuls."
- General Mills' Cinnamon Toast Crunch met its match in Mom's "Toasted Cinnamon Squares."
- And Kellogg's Froot Loops were beset by Mom's "Tootie Fruities" -- a cereal that Mom's hometown newspaper, the Minneapolis Star Tribune, called a "dead ringer" for the kid favorite.
And adding PR insult to financial injury, every box of cereal sold came with Mom's "Simple Goodness" boast, that it contained "no artificial preservatives, high fructose corn syrup or hydrogenated oil" -- and was produced "using renewable wind energy."
Result: In no time at all, Mom's transformed itself into "the leader in the [cold] cereal value segment" (according to Post's own press release announcing the deal), controlling an 18 percent market share nationwide, selling $760 million worth of cereal a year and bringing in roughly $120 million in earnings before interest, taxes, depreciation and amortization annually. All of which put Mom's squarely in Post Holding's crosshairs.
Wave Goodbye to Mom
Announcing the acquisition last month, Post CEO Rob Vitale highlighted the merger as ending "a century of spirited rivalry between Mom Brands and Post." Henceforth, Post says it will be "combining our strengths" -- but it will also be cutting costs.
Elaborating on the financial details that will follow the merger, Post noted that it hopes to help pay for its $1.15 billion acquisition by squeezing out "$50 million in run-rate cost synergies" from Mom Brands. These could include savings on:
- "Infrastructure rationalization" (closing factories and laying off production workers).
- "Shared administrative services" (laying off office workers).
- "Improved leverage within the combined sales force" (laying off salespeople).
What is certain, though, is that Big Food just got a little bit bigger.
Motley Fool contributor Rich Smith is hoarding a last few boxes of pre-Post Mom cereal -- just in case. He has no position in any of the stocks mentioned, however. The Motley Fool recommends Coca-Cola, Johnson & Johnson, PepsiCo, Post Holdings and Procter & Gamble. The Motley Fool owns shares of Johnson & Johnson, PepsiCo and Post Holdings and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.