Kellogg Co, the worlds leading breakfast cereal maker, is buying the Pringles potato chip brand from Procter & Gamble Co (P&G) for $2.695 billion in cash, as it moves to build its snacks business on par with its cereal business.
The deal comes after California-based Diamond Foods offered to buy the Pringles business for $2.35 billion, in April 2011, but the transaction was terminated following an internal probe at Diamond that found it had wrongly accounted for payments to walnut growers.
After both companies mutually terminated the deal, last week, Cincinnati-based P&G said that Pringles had "attracted considerable interest from other outside parties."
Pringles, a stacked potato crisp that has been on supermarket snack aisles for more than four decades and easily identified by snack lovers worldwide by its unique saddle shape and distinct canister packaging, is the world's second largest snack in savory brands.
Pringles, originally known as Pringles Newfangled Potato Chips, are fried, not baked and contains only about 42 per cent potato, while the remainder is wheat starch and flours mixed with vegetable oils and an emulsifier.
P&G, which makes Tide detergent and Crest toothpaste, said it expects to record an after-tax gain of between $1.4 billion to $1.5 billion from the sale, while Kellogg said it would be taking on $2 billion in debt to fund the deal, adding to its existing $5 billion in long-term debt.
Kellogg, which makes Keebler cookies, Cheez-It crackers and Special K Cracker Chips, said the acquisition will give it a leading global snack brand that is sold in more than 140 countries with $1.5 billion in annual sales.
Battle Creek, Michigan-based Kellogg said that it has established a strong US-based snacks business since its acquisition of Keebler more than a decade ago and the Pringle acquisition provides it a new source of growth for the company's already strong presence in the snacks category in the US as also a strong brand and an established platform to aggressively leverage its brands in the international snacks category.
It expects the acquisition to generate synergies of at least $10 million in 2012, more in 2013 and ongoing synergies of between $50 million and $75 million a year thereafter.