Stifel says that a Kellanova bid would further validate the power of its brands and growth potential Shares of Kellanova (K) are on the rise on Monday following news reports saying Snickers maker Mars is exploring a potential acquisition of the company. Commenting on the possible deal, RBC Capital said that a Mars takeover would make "so much sense," and upgraded Kellanova to Outperform on the news.
POTENTIAL TAKEOVER: Over the weekend, Reuters' Anirban Sen reported that family-owned food giant Mars, whose candy brands include M&M's and Snickers, is exploring a potential acquisition of Kellanova, maker of snacks such as Cheez-It and Pringles. A deal would be one of the biggest ever in the packaged food sector, given Kellanova's market value of $22B, and test the appetite of U.S. regulators to allow consolidation in the sector.
Citing sources familiar with the matter, The Wall Street Journal's Lauren Thomas also reported candy giant Mars is in advanced talks to acquire snack-maker Kellanova, in a deal that could come together imminently.
A MAR(VELOU)S DEAL: RBC Capital upgraded Kellanova to Outperform from Sector Perform with a price target of $76, up from $62, after Reuters reported over the weekend that Mars might have interest in acquiring Kellanova. The firm thinks "there is something here." The potential deal "makes so much sense" to RBC that it is upgrading Kellanova. The firm's channel work has suggested for some time that Mars has been looking to expand its snacking portfolio. Acquiring Kellanova would give the company a snacking platform with a strong global salty snack brand in Pringles as well as more regional brands that have yet to be globalized, RBC added.
Also commenting on the news, Stifel says it believes such a transaction would "further validate the power of Kellanova's brands and growth potential, both in North America and internationally." The firm sees the pipeline for potential M&A of packaged foods businesses as very full, but with a limited number of completed transactions it also thinks valuation spreads "remain wide, with a focus on upcoming potential deals to break the dam." Stifel has a Hold rating on Kellanova shares.
While noting that it has no knowledge of any potential deal, BofA says that for Mars, the Kellanova brands - Pringles, Cheez-it, Rice Krispies Treats - would bring salty snacks offerings to its confection brands in the U.S. - M&M's, Snickers - and enhance the expansion of Kellanova brands into small format stores. There is also a geographic overlap of the two businesses in the U.K. and continental Europe that could offer additional scale in those markets, the firm adds. Europe is Pringles' single largest market. BofA also argues that an acquisition of K would also likely make Mars a closer competitor against global food peers Mondelez (MDLZ) and Nestle (NSRGY). The Fly notes the firm had upgraded Kellanova to Buy following strong Q2 results and what it sees as continued topline and earnings momentum in the business for the remainder of 2024.
PRICE ACTION: In morning trading, shares of Kellanova have gained over 14% to $72.01.
