(Reuters) – Shares of Pringles maker Kellanova surged about 22% in buying and selling earlier than the bell on Monday, after a Reuters report mentioned sweet large Mars was exploring a possible buyout of the corporate.
A deal between Mars and Kellanova, recognized for snacks manufacturers reminiscent of Rice Krispies Treats and Pop-Tarts, can be one of many largest ever within the packaged meals sector.
“We believe that K’s portfolio of popular snack brands will fit well with Mars’ and help them expand scale in international markets,” TD Cowen analyst Robert Moskow mentioned in a shopper observe.
Dealmaking within the packaged meals area has picked up since final 12 months.
Final August, Campbell Soup (NYSE:) agreed to purchase Michael Angelo’s and Rao’s proprietor Sovos Manufacturers for $2.33 billion. The next month, J.M. Smucker acquired Twinkies maker Hostess Manufacturers (NASDAQ:) for $5.6 billion in a deal that united two main American snack makers.
Kellanova’s shares had been buying and selling at $77 premarket on Monday. The corporate had a market worth of about $27 billion, together with debt, as of the inventory’s Friday shut.
D.A. Davidson analyst Brian Holland expects Kellanova to fetch upwards of $87 per share in a takeout, based mostly on 15 instances its projected earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) over the following 12 months.
The brokerage raised Kellanova’s worth goal to $80 from $73, and ascribes a 50% probability of the acquisition.
“Mondelez (NASDAQ:) could be seen as another potential acquirer, though we view the implied leverage as a limiting factor,” Holland mentioned.
Gross sales progress at U.S. packaged meals firms reminiscent of Kraft Heinz (NASDAQ:), Mondelez and Hershey have taken a success as budget-strapped prospects save their {dollars} for important purchases and hunt for cheaper, private-label options to pricier branded objects.
“At times like this when growth slows, balance sheets are relatively clean, and valuations dip, the market leaders in food tend to look more closely at big combinations to drive cost synergies,” TD Cowen’s Moskow mentioned.
Kellanova’s ahead price-to-earnings ratio for the following 12 months, a standard benchmark for valuing shares, was 16.50, in contrast with Hershey’s 20.99 and Mondelez’s 19.69.
