Snack market domination? Industry experts examine the Mars-Kellanova acquisition

16 Aug 2024 --- The Mars-Kellanova deal, announced earlier this week, can add a more savory element to the Mars portfolio. It also promises to boost product innovation to attract consumers who have opted for alternatives to higher-priced household names during recent periods of food inflation and the cost-of-living crisis. Meanwhile, some in the industry have expressed competition concerns over such a large deal.

If greenlighted by competition authorities, the US$36 billion deal would be one of Mars International’s largest transactions in its 113-year history. It comes within a year of Kellogg’s being revamped and split into two companies with, Kellanova focusing on global snacking, international cereal and noodles and North America frozen foods, and WK Kellogg centering on cereal in the US, Canada and the Caribbean.

This week’s announcement that Mars has agreed to buy Kellanova for US$83.50 per share in cash, for a total consideration of US$35.9 billion, has got the F&B industry talking. It is set to be among the largest in packaged food since the 2015 Kraft and H.J. Heinz merger. 

Bigger and more powerful

If competition authorities approve, Mars and Kellanova will control seven snack and confectionery brands generating over US$1 billion of sales a year and boost their joint innovation pipeline to develop new offerings. 

The acqusition enables Kellanova to accelerate the realization of its full potential and vision, says Steve Cahillane, chairman, president and CEO of Kellanova.They will also target consumers who have turned to cheaper private-label, supermarket brands during the last few years of heavy food inflation. During the cost-of-living crisis consumers have been more frugal in the grocery aisles, often opting for substitutes to household names. 

Mark Lynch, from Oghma Partners, which offers corporate advice on acquisitions, divestments and strategy to Continental European and UK food, beverage and packing companies, believes the acquisition will go through without a hitch. 

“The merger will increase the competitiveness of the snacking sector. With its increased market presence, Mars should be able to leverage its position with regards to shelf space, promotional activity and marketing heft,” he tells Food Ingredients First.

“The deal flags the power of brands and stable cashflows to attract investment at attractive valuations and reminds investors there is more out there than just tech.”

“It will be interesting to see how watchdogs view the transaction. They would have to take a broad view on the general ‘snacking market’ to warrant a deep dive into this deal, so we would expect the deal to get a greenlight in most markets.”

Competition concerns

In contrast, other commentators have competition concerns that post-acquisition, Mars could capture half of all US snack and cereal bar sales.

Activist group Food and Watch Water, points out that in 2022 just four corporations cornered over two-thirds of the snack and cereal bar market — Kellogg’s and Mars alone controlled 49%. With this acquisition, Mars could take in half of all snack and cereal bar sales, “making the market highly consolidated and triggering a federal review.”

“American grocery shoppers are suffering from high prices and fewer choices on the shelves. The Mars’ Kellanova acquisition would only make it worse,” Food & Water Watch Research director Amanda Starbuck says.

“While processed food giants stand to ramp up profits from snack market domination, the American consumer will lose out with higher costs and fewer healthy options. A shrinking number of ever-larger corporations control a growing share of the food we buy, putting decisions about our health and finances in the hands of corporate kingpins. We must reverse this trend.”

Some commentators are concerned that post-acquisition, Mars could capture half of all US snack and cereal bar sales.However, Lynch says that Mars has never just been a chocolate business.

“Look, for example at its pet food operation. Chocolate confectionery will always have an appeal to consumers. The deal, however, gives more balance in the snacking space, offering a savory element to the portfolio and, to some extent, addressing a different consumption occasion. It will, therefore, broaden the Mars snacking offer and timing of that consumption.”

Snacking synergies

However, Mars insists the acquisition is about “bringing together two complementary snacking portfolios” which includes M&Ms, Twix, Extra and Snickers under Mars and the likes of Pringles, Cheez-It and Pop Tarts under Kellanova. 

Steve Cahillane, chairman, president and CEO of Kellanova, says this “is a truly historic combination with a compelling cultural and strategic fit.”

“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. 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.”

After closing, the plan is to bring Kellanova fully into Mars Snacking and combine the businesses. Andrew Clarke, global president of Mars Snacking, will lead the combined business. A joint integration team of leaders from both Mars and Kellanova will be assembled to determine how best to combine Kellanova with the Mars Snacking business.

The transaction is subject to Kellanova shareholder approval and other customary closing conditions, including regulatory approvals, and is anticipated to close within the first half of 2025.

By Gaynor Selby