LUXEMBOURG — The Ferrero Group has agreed to acquire Kellogg Co.’s selected cookie, fruit snack, pie crust and ice cream cone businesses in a cash transaction valued at $1.3 billion. Collectively, the businesses generated sales of approximately $900 million in 2018 and operating profit of $75 million. Cookies accounted for about $700 million of the business, according to Kellogg.
Ferrero will acquire a portfolio that includes Keebler, Famous Amos, Mother’s and Murray cookies, as well as Little Brownie Bakers, supplier of cookies to the Girl Scouts of the U.S.A. Brands in the transaction also include Stretch Island and Fruit Snacks fruit-flavored snacks and Keebler’s ice cream cones and pie crust products. Additionally, Ferrero will acquire six food manufacturing facilities from Kellogg Co. located in Allyn, Wash.; Augusta, Ga.; Florence and Louisville, Ky.; and Chicago; as well as a leased manufacturing facility in Baltimore.
Luxembourg-based Ferrero Group, the third largest chocolate confectionery company with global sales of more than $12 billion, entered the United States in 1969 with Tic Tac and subsequently Ferrero Rocher and Nutella brands. In 2018, the company acquired Nestle USA’s confectionery business after earlier buying Fannie May Confections and Ferrara Candy Co.
“Kellogg Co.’s cookie, fruit snack, ice cream cone and pie crust businesses are an excellent strategic fit for Ferrero as we continue to increase our overall footprint and product offerings in the North American market,” said Giovanni Ferrero, executive chairman of the Ferrero Group. “With this transaction, I look forward to bringing many iconic Kellogg brands into the Ferrero portfolio, to welcoming our new colleagues to the extended Ferrero community and to continuing Ferrero’s strong track record of growing brands, as we have through our successful acquisitions of Fannie May, Ferrara Candy Co. and the former Nestle U.S. confectionery business. We have great respect for Kellogg, its legacy and values, and are proud that Kellogg has chosen Ferrero as a good home for these businesses.”
Todd Siwak, chief executive officer of Ferrara Candy Co., added, “The acquisition presents an exciting opportunity to advance our strategic growth objectives, and we look forward to sharing our plans for the business with our customers, suppliers and other partners in the coming weeks and months, and welcoming our new colleagues from Kellogg.”
Battle Creek, Mich.-based Kellogg Co. first announced plans to sell the cookie and fruit snacks businesses this past November as part of a strategic review and restructuring. Kellogg acquired Keebler from Flowers Industries in 2001 in a transaction valued at $3.9 billion.
“This divestiture is yet another action we have taken to reshape and focus our portfolio, which will lead to reduced complexity, more targeted investment and better growth,” said Steven A. Cahillane, chairman and c.e.o. of Kellogg. “Divesting these great brands wasn’t an easy decision, but we are pleased that they are transitioning to an outstanding company with a portfolio in which they will receive the focus and resources to grow.”
The transaction is expected to close by the end of July and remains subject to customary closing conditions and regulatory approvals. Kellogg will retain its remaining North America snacking businesses, including crackers, salty snacks, wholesome snacks and toaster pastries brands.
Kellogg said it plans to use the cash proceeds from the sale to reduce outstanding debt. The transaction is expected to be less than 5% dilutive to Kellogg’s projected 2019 currency-neutral adjusted earnings per share.
Dara Mohsenian, an equity analyst with Morgan Stanley, wrote in an April 2 research report that the divestiture makes strategic sense for Kellogg “given Kellogg’s subscale positioning (No. 2 in cookies at 9% share vs. No. 1 Mondelez at 43% share, and No. 3 in fruit snacks at 12% share vs. No. 1 General Mills at 47% share, based on U.S. tracked channel scanner data), and that the businesses are less attractive with declining revenue and slightly lower margins than the U.S. snacks average.
“We also believe lower scale post the planned divestitures is more manageable now that Kellogg has transitioned out of the U.S. snacks D.S.D. model, and Kellogg should be able to reduce initial stranded overhead costs over time.”