Snack attack: Is Mars’ $35.9bn bet on Kellanova the key to dominating the healthier snacks market?

Poised to become one of the biggest M&A headlines of the year,​​ Mars – one of the world’s largest family-owned businesses – has inked an agreement to acquire Kellanova for $83.50 per share in cash, for a total consideration of $35.9bn.

The purchase of Kellanova is a cornerstone of Mars’ overarching ambition to double its snacking portfolio over the next decade: by expanding into more occasions and more categories. It unites two iconic 100-plus-year-old businesses with complementary footprints and brand portfolios.

“Both businesses are performing well, have outstanding brands, people-focused cultures, complementary portfolios, a commitment to sustainability, a true sense of purpose and a deep history of success over decades,” said Mars in a statement.

“This combination allows both businesses to achieve their full potential and together, we will have an exciting and unique opportunity to meet the needs of billions of consumers with trusted, loved and innovative products and create further opportunity for both businesses to achieve their full potential.”

Revamping the future of snacking

A major player in the confectionery space, Mars has been increasingly focused on diversifying into healthier snack options. The addition of Kellanova’s snack bar business – which includes megabrands like RXBar and NutriGain – will strengthen its presence in the growing market for better-for-you snacks. It reduces the candy maker's reliance on its traditional confectionery products, which are typically high in sugar and chocolate-heavy, especially important as cocoa prices remain elevated, having reached historical highs in March of nearly $10,000 per metric ton.

It also gives Mars a stronger foothold in the competitive snack bar space, dominated by major snack players like PepsiCo (Quaker bars) and Mondelez (Clif Bar).

Mars will become a strong contender in the salty snacks sector, able to capitalize on the strong brand equity of Kellanova’s billion-dollar brands – Pringles​​ and Cheez-It​​ – that have established loyal customer bases and outperform category competitors, particularly with Gen Z and Millennial consumers. However, Mars believes there is still ‘untapped potential’ with many of Kellanova’s brands and as such, has ‘no plans at this time to sunset any’ of them.

The diversification will help the Chicago-headquartered company tap into new revenue streams, especially in fast-growing geographies like Latin America. Mars CEO Poul Weihrauch also told the media there is opportunity in places like China and Africa for the two companies to grow together. Mars has a larger footprint in China, while Kellanova is stronger in Africa.

This is reinforced by complementary routes-to-market, supply chains and local operations. The deal also brings together a global workforce with solid R&D capabilities and brand-building experience. By acquiring the well-established snack business, Mars will benefit from economies of scale and potential cost synergies. This could involve integrating supply chains, manufacturing processes and marketing strategies, ultimately leading to improved efficiency and profitability.

The agreement also plays into the CSR commitments of both companies. Kellanova has a long history of social and environmental leadership, and its Better Days Promise initiative complements the Mars Sustainable in a Generation Plan, which is delivering tangible progress in reducing greenhouse gas emissions. According to Mars, once the deal is finalized, Kellanova will become part of the Mars Net Zero commitment and align with the Mars Responsible Marketing code.

“We will honor the heritage and innovation behind Kellanova’s incredible snacking and food brands while combining our respective strengths to deliver more choice and innovation to consumers and customers,” said Weihrauch.

“We have tremendous respect for the storied legacy that Kellanova has built and look forward to welcoming the Kellanova team.”

Transaction details

The $35.9bn price tag includes all of Kellanova’s brands – its portfolio of snacks, international cereal and noodles, North American plant-based foods and frozen breakfast – along with its assets and operations.

The transaction price represents a premium of approximately 44% to Kellanova’s unaffected 30-trading day volume weighted average price and a premium of approximately 33% to Kellanova’s unaffected 52-week high, as of August 2, 2024. The total consideration represents an acquisition multiple of 16.4x LTM adjusted EBITDA, as of June 29, 2024.

Mars intends to finance the purchase through a cash and a debt financing commitment of $29bn from JPMorgan Chase and Citi.

The agreement was unanimously approved by both Mars’ and Kellanova’s Board of Directors. The WK Kellogg Foundation Trust and the Gund Family have also committed to vote in favor of the transaction (shares representing 20.7% of Kellanova’s common stock, as of August 9, 2024).

However, the transaction – which is expected to close in the first half of 2025 – is subject to regulatory approvals. There have been reports of proposed antitrust hurdles, with the US Department of Justice and Federal Trade Commission under the Biden administration aggressively challenging big mergers and acquisitions. Others believe the deal is likely to pass regulatory muster as the two have very few overlapping product lines.

In the case of failure to obtain regulatory approval, Mars will have to pay a termination fee of $1.25bn. Kellanova will have to pay $800m to Mars if there is a change in board recommendation.

The agreement permits Kellanova to declare and pay quarterly dividends consistent with historical practice prior to the closing of the transaction.

Citi and law firm Skadden, Arps, Slate, Meagher & Flom advised Mars. Goldman Sachs and Kirkland & Ellis advised Kellanova, while investment bank Lazard advised Kellanova's Board of Directors.

What lies ahead

Upon completion of the deal, Kellanova will become part of Mars Snacking, led by global president Andrew Clarke. The combined company will be based in Chicago, although Kellanova’s Battle Creek-headquarters will remain a core location.

“This is an exciting opportunity to create a broader, global snacking business, allowing Kellanova and Mars Snacking to both achieve their full potential,” said Clarke.

“The Kellanova brands significantly expand our Snacking platform, allowing us to even more effectively meet consumer needs and drive profitable business growth. Our complementary portfolios, routes-to-market and R&D capabilities will unleash enhanced consumer-centric innovation to shape the future of responsible snacking.”

Steve Cahillane, Kellanova’s current chairman, president and CEO, said he would leave when the deal closes. Previously chair and CEO of Kellogg Company since 2017, Cahillane steered the conglomerate through a major restructuring that saw it split into two new entities.​​ Kellanova was spun off from cereal-focused WK Kellogg Co. in October 2023, subsequently posting strong earnings and raising its guidance for FY24. Net sales in 2023 topped $13bn.

Kellanova has a presence in 180 markets and approximately 23,000 employees across the globe.

For its part, Mars brings in more than $50bn in annual sales for its household brands like Kind, Snickers, M7M, Dove, Pedigree and Whiskas, among others, and more than 150,000 associates across its Petcare, Snacking and Food businesses.

“Kellanova has been on a transformation journey to become the world’s best snacking company and this opportunity to join Mars enables us to accelerate the realization of our full potential and our vision,” said Cahillane.

“The transaction maximizes shareholder value through an all-cash transaction at an attractive purchase price and creates new and exciting opportunities for our employees, customers and suppliers.

“We are excited for Kellanova’s next chapter as part of Mars, which will bring together both companies’ world-class talent and capabilities and our shared commitment to helping our communities thrive. With a proven track record of successfully and sustainably nurturing and growing acquired businesses, we are confident Mars is a natural home for the Kellanova brands and employees.”

Mars has set up a dedicated website to provide ongoing information about the transaction.​​