Unlock Editor’s Digest for free
FT editor Roula Khalaf selects her favourite stories in this weekly newsletter.
It’s snack time in the packaged food industry. Confectionery giant Mars is Investment of 36 billion dollars Pringles maker Kellanova could put negotiations back on the table for other multinational food and beverage companies.
Mars, a privately held company that makes Snickers and Skittles, will pay $83.50 a share in cash for the maker of Cheez-it and Eggo waffles. The price represents a 42 percent premium to Kellanova’s unchanged quarterly average.
With few major US snack groups left, a deal was never going to be cheap. Counting Kellanova, there are only seven companies in the US packaged food sector with market values above $20 billion.
Mars is paying the equivalent of 16 times enterprise value (EV) for forward EBITDA for Kellanova. The average ratio for recent deals in the sector was around 15 times, according to JPMorgan. And the deal looks even more expensive given the Difficult perspective for snacking, especially the less healthy varieties in Kellanova’s catalogue.
Salty snacks have been the fastest-growing category in the packaged food sector over the past 14 years, with a compound annual growth rate of about 5.8 percent between 2010 and 2023, according to Citi.
But that growth has slowed dramatically this year. Inflation-concerned consumers, particularly those with low incomes, are cutting back. At the same time, the rise of GLP-1 weight-loss drugs, such as Ozempic, Wegovy and Zepbound, is changing Americans’ waistlines. In a study by Morgan Stanley earlier this year, about two-thirds of GLP-1 drug users surveyed said they had reduced their snacking by more than 50 percent. Half of respondents also said they had reduced their consumption of sweets by more than 75 percent or stopped eating them altogether.
The strain is starting to be felt. Kellanova’s organic net sales rose 5 percent in the first six months of the year, but that was largely due to price increases. That strategy is not sustainable: consumers will buy less or choose private labels.
Mars, as a private company with more than $50 billion in sales, chose not to provide cost-saving targets to justify its deal, but the overlap between the two appears limited. Mars is clearly willing to pay more to diversify away from its chocolate-heavy snack portfolio. Kellanova, which gets about half of its $13 billion annual sales from chips and crackers, would do so. Still, $36 billion is a very big bite for what seems like a dubious defensive maneuver.