Text size Pack your bags, Ernie Keebler. The Keebler cookies brand has a new home. Kellogg (ticker: K) is selling some of its snack businesses, including Keebler, Mother’s, and Famous Amos, to Ferrero Group for $1.3 billion, Kellogg announced today. The back story. Kellogg stock is nearly flat this year, even as the S&P 500 index has seen its best quarter since 2009. Kellogg does sport a 4.1% dividend yield, though its sizable payout hasn’t prevented the stock from dropping nearly 13% during the past 12 months. What’s new. Kellogg announced on Monday that it would sell its cookies, fruit snacks, pie crusts, and ice cream cone businesses to Nutella-maker Ferrero Group, which will also buy five U.S. production facilities. The deal includes cookies Kellogg manufactured for Girl Scouts of the U.S.A. “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 CEO Steve Cahillane. Wells Fargo analyst John Baumgartner maintained a Market Perform rating on Kellogg after the sale was announced. “Given the under-scaled/under-invested nature of the divested assets, we view the exit as positive for long-term resource allocation.” Looking ahead. The businesses included in the deal accounted for $900 million in net sales in 2018, as well as operating profit of around $75 million, Kellogg said. The company expects the transaction to be less than 5% dilutive to its projected 2020 currency-neutral adjusted earnings per share, assuming the cash proceeds are used only to reduce outstanding debt. The company will keep its crackers, salty snacks, wholesome snacks, and toaster pastries brands. “Kellogg exhibits a strong presence within profitable, fast-turning categories and Pringles enhances snacking growth,” Baumgartner wrote. “We’re increasingly impressed with growth-oriented investments and budding momentum across the international business. Still, we view K’s 12-month risk/reward as balanced given FY19’s status as a reinvestment year.” Kellogg shares were down 1.1% to $56.75 Monday, when the S&P 500 index was up almost 0.8%.<doc-sep>Bank of America CEO on raising minimum wage: It's an investment in our teammates President Joe Biden stops to talk to the media as he drives a Ford F-150 Lightning truck at Ford Dearborn Development Center, Tuesday, May 18, 2021, in Dearborn, Mich. A visual representation of the digital Cryptocurrency, Bitcoin on December 07, 2017 in London, England. Ethereum's 27-year-old founder says we're in a crypto bubble. Did it just burst? 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The fugitive tycoon, who denies any wrongdoing, skipped bail while awaiting trial on multiple charges of financial misconduct including allegedly under-reporting his compensation to the tune of $85 million. (Photo by JOSEPH EID/AFP via Getty Images) BTS and McDonald's launch exclusive meal with two new dipping sauces B25_25594_R James Bond (Daniel Craig) prepares to shoot in NO TIME TO DIE, an EON Productions and Metro-Goldwyn-Mayer Studios film Credit: Nicola Dove © 2020 DANJAQ, LLC AND MGM. ALL RIGHTS RESERVED. Kellogg is getting out of cookies (CNN Business) — Kellogg is getting out of the cookie business to focus on snacks and cereal. Ferrero will buy Kellogg’s Keebler cookies, Famous Amos, Mother’s, Murray’s, Girl Scout cookies and fruit snacks brands for $1.3 billion. Ferrero makes Nutella, Tic Tacs and Ferrero Rocher chocolates among other confectioneries. Kellogg has been trying to sell off those brands since November. It said the brands weren’t a good fit with the rest of the company’s offerings, and the company had difficulty devoting the resources necessary to compete in the crowded cookie market. Last year, the businesses Kellogg is selling to Ferrero brought in about $900 million in sales but only $75 million in operating profit. “Divesting these great brands wasn’t an easy decision,” said Steve Cahillane, Kellogg’s CEO, in a statement. “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.” Wells Fargo analyst John Baumgartner said that the sale could provide a “halo effect” for Kellogg’s, which is holding on to Keebler’s cracker business, if Ferrero invests in marketing Keebler. Daniel Acker/Bloomberg via Getty Images Kellogg is selling Keebler to focus on cereal For Ferrero, the acquisition is a way to expand its North American business. The deal “[allows] us to significantly diversify our portfolio and capitalize on exciting new growth opportunities in the world’s largest cookies market,” said Lapo Civiletti, CEO of the Ferrero Group. Christopher Hood, President of Kellogg North America, compared Kellogg’s cookie business to Pringles, which the company acquired from Procter & Gamble in 2012. Pringles “was not a high-growth business within P&G, not a business that the company was interested in investing in, because they had alternative places where they could invest for high return,” he said. “It’s a similar situation for us within Kellogg’s.” Saltier snacks like Pringles have been a boost to Kellogg’s business. The company said in February that Pringles retail sales grew 7% and Cheez-Its grew 5% in 2018, citing Nielsen data. Sweeter snacks also did well last year. Retail sales of Rice Krispies Treats grew 15% and Pop-Tarts popped 2% in 2018. Cahillane has counted all of these among Kellogg’s “power brands.” And though cereal sales are spotty, they’re Kellogg’s bread and butter, so the brand has to figure out a way to make them grow. While Kellogg is selling off its low-priority businesses and focusing on its power businesses, it’s also bringing trendy new brands into the fold. The company announced the acquisition of RXBar, the protein bar brand that has expanded into nut butters and kids treats, in 2017. In November, Kellogg said it plans to reorganize its North America team and invest in e-commerce to drive growth.<doc-sep>
Kellogg announced plans Monday to sell its Keebler, Famous Amos and fruit snacks businesses to Nutella-owner Ferrero for $1.3 billion. Ferrero beat out Hostess Brands for the cookie business, people familiar with the deal previously told CNBC. The owner of Twinkies and Ho Hos had been looking to acquire Keebler through a "Reverse Morris Trust," an unusual deal structure that allows for a tax-efficient combination of two similarly sized companies. The Kellogg-Ferrero deal, expected to close by the end of July, was first reported by CNBC. The acquisition is the latest in a string of deals for Ferrero. The company, founded in Italy in 1946 as a family business, entered the U.S. market in 1969 with its Tic Tac mints. In the past two years, it has built up that foothold, buying Ferrara Candy Co. for $1 billion and Nestle's U.S. candy business for $2.8 billion. Its array of brands now includes Butterfinger, SweeTarts and Crunch. Its U.S. strategy has been to buy brands that, like Nestle's candy business and Kellogg's cookie business, have been neglected within broader food companies' portfolios. It plans to pour its resources into reinvesting and modernizing those brands. Already, it has rolled out a "better Butterfinger" with larger peanuts, more cocoa and milk and no hydrogenated oils. "We are acquiring a portfolio of well-established brands that consumers love, with very strong market positions across their respective categories, allowing us to significantly diversify our portfolio and capitalize on exciting new growth opportunities in the world's largest cookies market, Ferrero Group CEO Lapo Civiletti said in a statement. With the deal, Ferrero is also acquiring six U.S. food manufacturing facilities across the U.S. and a leased manufacturing plant in Baltimore. The company had also been in the running to buy Campbell's Australian cookie business, Arnott's, CNBC first reported, but has since dropped out, people familiar said. Kellogg, meantime, is paring back its portfolio to focus on brands it can revive, like Pringles, Cheez-Its, and Rice Krispies Treats. Shares of Kellogg, which has a market capitalization of $19.72 billion, are down nearly 11 percent over the past year. They were down fractionally Monday. "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," Kellogg CEO Steve Cahillane said in a statement. "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 Corn Flakes-owner acquired Keebler in 2001 for $4.4 billion. At the time, part of its draw was the cookie brand's "direct-store delivery" platform, through which employees place the company's own products in stores, rather than ship from warehouses. So-called DSD gives a food company more control over ensuring proper display in grocery and convenience stores. But as in-store sales of products like cookies have fallen, it is less economical. Kellogg has since dropped DSD distribution. Evercore acted as lead financial advisor to Kellogg, while Goldman Sachs acted as co-advisor. Wachtell, Lipton, Rosen & Katz provided legal counsel to Kellogg. J.P. Morgan Securities acted as financial advisor to Ferrero, while Davis Polk & Wardwell provided legal counsel. Watch: Kellogg explores selling cookie and fruit snack business