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Kellogg Breakup Lifts Food Shares on Prospect of More Deals


Following Kellogg Co.’s three-way split and Mondelez International Inc.’s $2.9 billion acquisition of Clif Bar & Co., Wall Street expects more food-industry deals as Covid-snacking trends persist and stock values remain low.

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(Bloomberg) — Following Kellogg Co.’s three-way split and Mondelez International Inc.’s $2.9 billion acquisition of Clif Bar & Co., Wall Street expects more food-industry deals as Covid-snacking trends persist and stock values remain low. 

Food stocks jumped on Tuesday after the two announcements, which illustrate how Covid-19 strengthened snacking trends, and companies are now looking to benefit from it. Kellogg is splitting into three independent companies, with Chief Executive Officer Steve Cahillane saying the businesses have “significant standalone potential.” Mondelez’s purchase of the organic energy-bar maker expands its roster of snack brands that already includes Oreo, Ritz Crackers and Wheat Thins. 

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Jonathan Feeney, an analyst at Consumer Edge Research, is recommending clients buy shares of peers such as Campbell Soup Co. and Kraft Heinz Co., predicting they “will now be more aggressive to realize value.” 

“This and other similar actions make financial sense mainly because food stock valuations simply don’t incorporate their pricing power,” he wrote in a note to clients. He said that price increases for food companies have been enough to offset higher expenses, while the pandemic postponed actions by the industry to boost sales and share valuations.

Opinion: Andrea Felsted on the appeal to investors of Kellogg’s businesses

Americans already eat snacks multiple times a day and a recent Mintel report suggests this behavior will only increase. More than half of consumers surveyed ages 35 to 54 said that snacking throughout the day is healthier than eating three regular meals, and two-thirds of those respondents said they would pay more for healthier snacks. 

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Before the pandemic, mature snack categories like bars and chips saw slow, steady growth, according to Mintel. But the pandemic accelerated home-based snacking, at least temporarily jolting the category into higher sales growth.

Kellogg’s split looks to take advantage of the trend. Cahillane will helm the global snacking business, which will be headquartered in Chicago. It had sales of about $11.4 billion last year — well above the totals for the North American cereal and plant-based food units that will be spun off by the end of 2023. The snacking company will seek to expand brands such as Cheez-It crackers to new markets, similar to what Kellogg did with Pringles potato chips. 

It will be “a high-single-digit-growth company,” Cahillane said in an interview, adding that the business has the opportunity to grow with both acquisitions and organic expansion. 

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Kellogg will also explore strategic options, including a possible sale, for its plant-based company, which is known for faux meat versions of hamburger patties and chicken tenders. The category had seen major growth for several years, although it has grown more competitive.

‘Leadership Position’

Kellogg and Mondelez aren’t the only companies looking closely at the snacking category. JM Smucker Co. is also looking to expand and is “very interested in acquisitions,” Chief Executive Officer Mark Smucker said earlier this month following earnings. The company, which focuses on coffee, pet food, snacks and frozen foods, would enter a new category if it can take “leadership position” in it, he said. 

Kellogg shares jumped as much as 5.5% in New York trading on Tuesday, the most intraday in more than a year. The stock had gained 4.8% this year through Friday’s close, far outpacing the 23% decline in the S&P 500.

The tax-free status of the Kellogg spinoffs would likely discourage rivals seeking to take over the new, smaller businesses, at least initially. Any takeover bids in the two years following the move would have to pay higher taxes on the transaction. 

Robert Willens, an independent tax analyst, predicted Kellogg’s deal will be approved by the IRS for tax-free treatment. 

“This is about as textbook as you can get,” Willens said in an interview. “I am quite confident — I would bet anything — that this would easily pass muster.”

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