Pringle's slogan "Once You Pop, The Fun Don't Stop" must have a nice ring to the ears of Kellogg's directors, maybe because they felt it went well with the "Snap, Crackle and Pop" of their Rice Krispies cereal. Either way, the two iconic popping foods are now together under one company.
For $2.7 billion, Kellogg Co.
According to P&G, "The Pringles business is an excellent strategic fit for Kellogg, and it will significantly advance their goal of building a global snacks business on par with its global cereal business."
Still, P&G had hoped to gain more from the transaction with Diamond than Kellogg. The deal with Diamond was slated to be worth $2.35 billion and paid out as a tax-free stock transaction, not cash, which will be taxed as a capital gain.
Merger & Acquisitions mentality
Behind this transaction is the question: Why was P&G selling Pringles, and why was Kellogg buying?
When companies buy up or sell other companies or components, they act like individual investors handling stocks. The buyer feels the M&A target is potentially undervalued, or could better thrive under their wing (see: portfolio).
The M&A target may be selling because they feel the company is not efficient enough under their ownership, or even dragging down profits. In the case of Pringles, Kellogg's experience with cereals and snacks could provide a big boost for the potato chip company that P&G wasn't equipped to offer, all while relieving P&G's profit margins.
Business section: Investing ideas
So, Kellogg thinks the snack potato chip company, Pringles, is a potentially undervalued and worthwhile investment. Do you think other snack companies feel the same way?
We ran a screen on processed food stocks that are operating less profitably than their industry averages on the basis of gross, pre-tax, and operating margins.
Do you think the sale of Pringles to Kellogg might inspire these companies to sell off some of their less profitable units to more efficient companies? (Click here to access free, interactive tools to analyze these ideas.)
1. ConAgra Foods
2. Corn Products International
3. Treehouse Foods
4. The Hain Celestial Group
5. Diamond Foods
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above.
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