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Kellanova (K +8%) is snacking on some nice gains after agreeing to be acquired by privately-held Mars, Inc., a huge player in snacks and pet care. The all-cash deal price is $83.50 per share, a 12% premium from yesterday's close, but a 33% premium from when Reuters reported on August 5 that Mars was mulling a deal. This is a major acquisition, valued at $35.9 bln. Kellanova had 2023 sales of more than $13 bln while Mars posted more than $50 bln in sales.

• It has been less than a year (October 2023) since Kellogg finalized the split of its snacking and cereal businesses. Kellogg was renamed Kellanova and included iconic snack brands including Pringles, Cheez-It, Pop-Tarts, Kellogg's Rice Krispies Treats, Nutri-Grain, and RXBAR. Kellanova also received other brands include Kellogg's (international), Eggo and MorningStar Farms.
• Its cereal business was renamed WK Kellogg (KLG). Despite the Kellogg name, the company was much more of a snack food company rather than a cereal company. Revenue from snacking dwarfed its slower growth cereals business. Separating into two companies allowed its higher growth snack business to not be burdened by its slower growth cereal business. And that paid off quickly as Mars clearly liked what it saw from the snacks business.
• Mars believes that snacking is a large, attractive and durable category that continues to grow in importance with consumers. Kellanova's portfolio of salty snacks complements Mars' existing portfolio, which focuses more on chocolate, including Snickers, M&Ms, Twix, Dove and Extra Gum. Mars also has 10 pet care brands with over $1 bln in sales, including Royal Canin, VCA, Pedigree, Whiskas, Iams etc.
• Specifically, the addition of Kellanova provides Mars Snacking with entry into new attractive snacking categories. The deal also adds two new billion-dollar brands (Pringles, Cheez-It), bringing Mars total to 15 billion-dollar brands. The deal will also expands the Mars health & wellness Snacking portfolio with the addition of RXBAR (protein bars) and NutriGrain. Also, Mars says the majority of Kellanova snacking brands outperform competitors, particularly among Gen Z and Millennial consumers.

Overall, we think this looks like a smart fit. It combines Kellanova's salty snacks and healthy snacks with Mars' current roster, which is very heavy on chocolate. So there is good diversification there. We also think the premium is generous for investors, who should focus on where it was trading when press reports talked about a possible deal in early August.

Briefing.com has been a keen follower of food stocks over the years, and the consistent theme we have seen over the past decade plus, is that snacking is where it's at. Growth for food generally is pretty slow, but a consistent theme we have heard is that companies want to focus on snacks, which as Mars says is a large, attractive and durable category. Consumers are always on the go and snacks are a priority with US consumers.

On a quick final note, we cheered when Kellogg split in two and let its snack business be unencumbered by cereal and now look at the premium it got in less than a year. We wonder if this deal will finally spur Pepsico (PEP) to separate its high growth snack segment from its sluggish beverage segment. Briefing.com and investors have been clamoring for PEP to do this, but to no avail. Maybe this hefty premium here will convince PEP to finally go down this path.