Kellog to pay $3.6bn for Keebler

In a move that caps the sweeping consolidation of the biscuits industry in the US, Kellogg Inc, the US cereals group, is understood to be buying out Keebler, the number two US biscuit-maker, in a deal that is estimated at $3.6 billion in cash and will assume its debt.

It was well-known in industry circles that Keebler was in effect put up for auction in July this year, when Flower Industries, its majority shareholder, restructured itself to allow an easier sale of the biscuit maker while it focussed on its core fresh baked goods.

For Carlos Gutierrez, Kellogg chief executive, this move represents the boldest step, yet, taken by him in his quest to revitalise the world's largest cereal company. Since taking over as chief executive, Mr Gutierrez has been struggling to streamline the company and change its insular culture. He has been looking at acquisitions to diversify the company's revenue sources and reduce its dependence on the cereal market.

As a result Kellogg, which invented the breakfast cereal about 100 years ago, is increasingly moving into convenience foods and snacks to make them its new growth engine. Keebler's acquisition is a further move in this direction.

According to Kellogg officials, the deal, which is expected to be completed in the first quarter of next year, should increase cash earnings in the first year. It also sees cost savings of $20 million next year and eventually a total of $175 million by 2004, and growth potential by merging the two companies' powerful distribution networks, including Keebler's direct store delivery system.