Last October, the company formerly known as Kellogg’s embarked on a new future under a new name, spinning off its household name cereal brands and forging ahead as a snacking-only business.
Ten months later, Kellanova is staring down a new future: joining candy brands, such as Snickers and Twix under the leadership of Mars, which plans to purchase the Pringles producer for $35.9 billion.
In an interview with Food Dive, Kellanova CEO Steve Cahillane said that earlier this year, Mars CEO Poul Weihrauch called him and presented the idea of purchasing the Cheez-It maker over lunch.
“That led to a series of meetings over the coming months, continuing to talk about it until we came to the right outcome,” Cahillane said. “It was compelling industrial logic of the complementarity of their business and our from a brand and categories perspective, as well as a geographic perspective.”
Kellanova believes the purchase will help expand its product portfolio into the front of grocery stores and gas stations, which Mars has on lock with its candy and gum presence. Ditto for growing its presence in new regions.
Mars has a much larger business in China, Cahillane said, which Kellanova believes will benefit its brands that have less of a presence in the country, particularly Pringles, because of the candy giant’s route-to-market expertise. On the flip side, Kellanova has a larger presence in Africa whereas Mars does not.
“You think about all the Snickers and M&M’s that we can put through our system to help those brands and you see the logic again,” Cahillane said. “The combination is very compelling.”
This vision of combining the two businesses also factors in the snacking giant’s active innovation pipeline that has led to a number of product launches in recent years from Cheez-It Puff’d and Pringles-flavored Morningstar Farms plant-based Chick’n Fries.
Under an integrated Mars and Kellanova, the combined company would have an expansive array of candy, snacks and even plant-based meat products to experiment with blending the flavors and formats.
“Very quickly people at our company started to talk about M&M’s Pop-Tarts,” Cahillane said, “and all sorts of innovations that can come by fusing the brands together.”
Cahillane — who joined Kellogg as CEO in 2017 after decades in executive roles at companies such as Coca-Cola, Anheuser-Busch InBev and Nature’s Bounty — said his intention is to hand off the snacking giant to Mars by helping Kellanova maintain its momentum before he steps down and decides what to do next.
Twix, one of the most popular candy brands owned by Mars.
Courtesy of Mars
Confidence amid harsh antitrust climate
Kellanova does not foresee difficulty in the transaction with Mars withstanding regulatory approval, even with the Biden administration’s aggressive antitrust pursuits.
Cahillane reiterated that the only area where the two businesses overlap is in the snack bar category. Kellanova produces RXBar and Special K while Mars owns Kind bars.
“I don’t expect that it should be problematic,” the Kellanova CEO said, “but we’ll work very collaboratively with the regulators to explain exactly the way we see the situation.”
The Mars-Kellanova transaction is not without its critics. Amanda Starbuck, a research director at Food & Water Watch, predicts the merger could lead to higher prices for consumers amid a period of high food inflation.
“While processed food giants stand to ramp up profits from snack market domination, the American consumer will lose out with higher costs and fewer healthy options,” Starbuck said in a statement. “The Biden-Harris administration has committed to reining in the food monopolies. The Federal Trade Commission must intervene to block this destructive corporate coupling.”
Some experts speculate that the Mars-Kellanova merger could open the door to more consolidation in the food and beverage industry.
In a note to investors Wednesday, TD Cowen analyst Robert Moskow said Kellanova’s portfolio could benefit from the leadership of Mars, specifically internationally.
Moskow recalled the last time a slew of major food industry acquisitions happened in the late 90s and early 2000s, such as General Mills buying Pillsbury; Kraft acquiring Nabisco and Kellogg purchasing Keebler.
But M&A deals of that kind of magnitude also have drawbacks, Moskow said. “Many of the remaining large cap food companies today have trusts or family members with significant controlling shares, which pose obstacles for acquirers.”
