Candy Giant Ferrero Targets WK Kellogg In $3.1 Billion U.S. Expansion

U.S. breakfast cereal company WK Kellogg is to be snapped, crackled and popped up by Italian food giant Ferrero, the family-owned business behind products such as Nutella spread, Tic Tac and the Kinder candy brands.

It has agreed to acquire the U.S. breakfast cereal giant WK Kellogg in a deal worth $3.1 billion including debt, with Ferrero slated to pay $23 a share in cash for the maker of market leading products such as Kellogg’s Corn Flakes, Rice Krispies and Froot Loops.

That represents a hefty 40% premium to its average share price over the past 30 days, the companies said Thursday, and is 31% above the closing price the day before the announcement.

The move comes with the cereal maker struggling tolive up to expectations and during a period of consolidation in the U.S. food sector.

In 2023 WK Kellogg was spun off to operate as a cereal specialist by parent company Kellogg Co., which subsequently rebadged itself as Kellanova and retained snacks brands such as Pop-Tarts and Pringles potato chips. Last year food group colossus Mars agreed to acquire Kellanova in a massive $36 billion deal but that is currently facing antitrust scrutiny from European regulators.

However, Michigan-based WK Kellogg’s fortunes as an independent company have so far disappointed and its shares have underperformed the wider market, with net debt of $569 million as of March this year.

WK Kellogg is expected to report its quarterly results on August 5, but the company will not hold a conference call, citing the pending deal. According to its preliminary results, also announced Thursday, the company is forecasting net sales in the range $610 million to $615 million, down about 9% year on year, and adjusted earnings before interest, taxes, depreciation and amortization between $43 million and $48 million.

WK Kellogg Deal Backed

WK Kellogg’s largest shareholder is the charitable trust the WK Kellogg Foundation, which holds about 16% of outstanding stock. The foundation and the Gund family, another of the company’s major shareholders, are backing the transaction, the companies said.

“Over recent years, Ferrero has expanded its presence in North America, bringing together our well-known brands from around the world with local jewels rooted in the U.S.,” said Giovanni Ferrero, Ferrero’s executive chair, in a statement as he confirmed that Battle Creek, Michigan will be Ferrero’s headquarters for North America cereal after the deal closes.

Ferrero generated revenue of about $21.5 billion in the 12 months to the end of August last year and has been on a spending spree to expand in the U.S. having bought ice cream maker and Halo Top owner Well Enterprises in 2022, plus Nestlé’s confectionery business for $2.8 billion in 2018, as well as candy manufacturer Fannie May in 2017.

WK Kellogg Under Government Pressure

The move to acquire WK Kellogg comes at a time when the U.S. food industry is facing unprecedented political pressure following the appointment of Robert F Kennedy Jr. as the top U.S. health official. He has avowed to remove harmful additives and artificial dyes from processed foods as part of his ‘Make America Healthy Again’ agenda.

On top of that, in recent times many American consumers have spurned sugary cereals in favor of breakfast options they consider healthier, while other shoppers have switched to grocery store alternative brands as a result of high inflation over recent years.

In repsonse, WK Kellogg has pledged to remove synthetic colors from cereals in schools by the 2026-27 academic year but has not yet confirmed a timeline for cereals consumed outside of school.

WK Kellogg founder Will Keith Kellogg invented his famous cornflakes in 1894, with the group growing to become arguably the best known cereal empire in the world. On the other side of the Atlantic, Ferrero was founded in 1946 by Italian confectioner Pietro Ferrero and the company remains under family ownership, with Ferrero’s grandson Giovanni serving as executive chair.