Kraft's Forbidden Fruit

Now that Kraft (NYSE:KFT) has entered into a $30 million deal to sell its fruit snacks business to Kellogg (NYSE:K), let's hope that Kraft didn't simply move the headstones and leave the bodies.

That's because, for lack of a less supernatural explanation, Kraft's fruit snacks were cursed. How else would one explain messing up something as simple and surging in popularity as fruit snacks? Back in February the company chose to discontinue its Road Kill product line after activists complained of the fruit snacks bearing the gruesome likeness of tire-flattened critters. It was certainly not the company's brightest moment.

Fruit snacks were such a colossal failure for Kraft that it took a $93 million asset impairment charge earlier this year. Selling a business that produced $80 million in sales for just $30 million, plant included? That's a distressed seller in action. Kraft and Kellogg trade at 1.7 and 1.8 times trailing sales, respectively. Selling its fruit snacks business for 0.4 times trailing sales? That's the Poltergeist family fleeing the phantom-riddled house and never looking back.

Yet Kellogg is hoping for a better sequel than Poltergeist 2. I think Kellogg is getting a bargain here. For starters, look at Kellogg's moves in recent years. While it was always more than just a cereal maker, one of its best strategic moves lately was taking its popular Frosted Flakes and Froot Loops brands and rolling them out as snack bars. So, along with its popular Pop-Tarts, Kellogg has been making inroads into portable snacks for some time now.

The company will also be assuming the Nickelodeon licensing line from Viacom (NYSE:VIA). That's worth noting because, for the most part, fruit snacks tend to taste the same. Kids just get enamored with the familiar character shapes. Trust me, as a parent, I know.

So kudos to Kellogg. I'll admit that I didn't see it coming. When I was writing about Kraft's bad timing in trying to unload its fruit snacks business at an inopportune time back in February as a result of the Road Kill flap, I figured that it would be a more traditional confectionary specialist like Hershey (NYSE:HSY), Tootsie Roll (NYSE:TR), or Wrigley (NYSE:WWY) that would come in and cash in on Kraft's fire sale.

Kellogg now has a bargain on its hands as it tries to reverse the curse.

For more related stories:

• Kraft did have a public relations nightmare on its hands with Road Kill.
• Kraft is backing away from advertising to kids.
• Vermont Teddy Bear (NASDAQ:BEAR) knows a thing or two about controversial products.

Longtime Fool contributor Rick Munarriz wonders if the next activist target will be the name of Kraft's sandwich spread. I mean, c'mon, you know -- Miracle Whip gets a free pass? I don't think so. He does not own shares in any company mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.