Mars’ $30bn move for Kellanova could kick off consolidation wave

Confectionery giant Mars’ rumoured multibillion-dollar move for Kellanova – the former snacking arm of Kellogg’s – has got analysts talking this week. 

Privately owned Mars is understood to be in talks to buy Pringles maker Kellanova, which is listed in the US, in a deal potentially worth over $30bn.

It would be a significant move, both in size and strategic direction. Any deal for Kellanova – spun out of Kellogg’s in late 2023 to split its snacking and cereals business – won’t come cheap.

After a share price boost yesterday, Kellanova already has a market capitalisation of over $24bn. Including debt, that gives it an enterprise value north of $30bn.

It means the rumoured deal would be the largest food and drink acquisition in almost a decade, following the €45bn mega-merger of Kraft Foods and Heinz in 2015. It would also signal a change in strategy for major fmcg groups, which have increasingly shied away from major consolidation after the mixed investor response and performance of Kraft Heinz post-merger.

There have been some major consolidation plays – most notably Kraft Heinz’s play for Unilever in 2017 and Unilever’s own attempt to buy GSK’s consumer health arm – but nothing of this scale has come to fruition. Major M&A has seemingly fallen out of favour with shareholders.

So will this be different?

US broker Davidson gave the deal a 50% likelihood of happening. However, it said the acquisition does make strategic sense given Kellanova’s attractive valuation compared to sector contemporaries. It is also less focused on North America than most US-listed food and drink firms, with only Mondelez having a more significant exposure to emerging markets.

As Davidson pointed out, the portfolios could be complementary. Kellanova’s snacking focus would build on Mars’ own strength in this area. An acquisition would also take Mars into savoury snacks and breakfast occasions, given Kellanova gained brands like Special K and Pop Tarts in the Kellogg’s split.

However, Jefferies suggested Mars would have to pay around $85 a share to get the deal done, which would be a 35% premium to its Friday closing price and still significantly above the $73.35 it currently trades at.

One advantage Mars may have in securing a deal is the lack of a need to convince its own shareholders, given it remains family-owned. Mars has been notably acquisitive in recent times, acquiring UK-based premium chocolatier Hotel Chocolat for £534m last year along with healthy food maker Kevin’s Natural Foods. But M&A of this size is on another level entirely, and would be the biggest deal in Mars’ history.

There is also speculation the move could force rivals to make a play for Kellanova. Reports have pointed to Mondelez as the most likely name in the frame, but Hershey and General Mills were also mentioned, while PepsiCo might struggle with competition issues.

Even if a bidding war does not materialise, the news does suggest major dealmaking is back on the table for food and drink multinationals.

A number of US analysts suggested a merger of this scale could result in a wave of fmcg consolidation – last seen over 20 years ago – as companies with strong balance sheets seek to drive portfolio growth in more benign pricing era.

The FT quotes Robert Moskow, an analyst at TD Cowen: “At times like this when growth slows, balance sheets are relatively clean and valuations dip, the market leaders in food tend to look more closely at big combinations to drive cost synergies.”

In that sense, maybe the “once you pop you can’t stop” mantra will also apply to global food and drink dealmaking.