Kellogg company

acquires Pringles
brand

Learning Group Members:

1. Tonmoy Saha-010112137
2. Ranit Kundu-010112055
3. Snehasis Basu-010112108
4. Subhra Manna-010112002

Before we are talking about the project lets talk about some definition.

Merger: It is a tool used by companies for the purpose of expands their operations and
aiming an increase of the long term profitability. There are 15 different types of action that
company take decision to move forward using M&A. Merger occurs in a mutual consent
where executive from the target company help those from purchasers in a due diligence
process to ensure that the deal is beneficial for both the parties.
In a business economy Merger is a combination of two companies into one larger
company.The action are commonly voluntary and involve stock swap and cash payment to
the target.Stock swap its allow the shareholders of the two companies to share the risk
involved in the deal one.A merger can be resemble a takeover but result in a new company
name and new brandingterming the combination a merger rather than the acquisition is done
purely for political or marketing reason.

Acquisition:
It happen through hostile takeover by purchasing the majority of outstanding shares of a
company in the open market against the wishes of the targets board.In the former case the
companies co operate in negotiations.Thye take over target unwilling to to be bought or target
board has no prior knowledge of the offer.It refers to purchase of smaller firm by a large
one.however sometime a smaller firm will acquire management control of alarger or longer
established company and keeps its name for the combined entity.this is called reverse
takeover.
Drucker has identified the 5 commandments for a successful acquisition:
Acquire must be contribute something to acquired company
Common core of unity should be present
Acquirer must be respect the business of the acquired company
Within a year or so acquiring company must be able to provide top management to the
acquired company.
Within a 1st Year of the merger managements in both the companies should receive
promotion across the entities.
So in order to ensure the successful acquisition it is important to focus attention on the fit
between two firms and 3 type of fits to considered Strategic ,Financial and Organizational
culture.

Introduction:Valuation of the company:

Kellogg is founded in 1906 in united states by Will Keith Kellogg and today its in running
with 30277 employee and it has 3 headquarters which are Battle Creek,Michigan
Now Kellogg manufacturing their product across the 18 countries and marketed in more than
180 country.
Recently the marklet Cap of this company is $22.49 Billion.
Driven to enrich and delight the world through foods and brands that matter, Kellogg
Company is the world's leading producer of cereal, second largest producer of cookies and
crackers and - through the May 2012 acquisition of the iconic Pringles business - the world's
second largest savory snacks company. In addition, Kellogg is a leading producer of frozen
foods. Every day, this brands - produced in 18 countries and marketed in more than 180
countries - nourish families so they can flourish and thrive. With 2011 sales of more than $13
billion, these brands include Cheez-It, Coco Pops, Corn Flakes, Eggo, Frosted Flakes, Kashi,
Keebler, Kellogg's, Mini-Wheats, Pop-Tarts, Pringles, Rice Krispies and many more.
Pringles acquisition makes Kellogg the world's No. 2 savory snacks player. It nearly triples
company's international snacks business. Today's Pringles acquisition is an important step
forward in Kellogg strategy to expand snacks business and enhance global footprint. Talented
Pringles employees to strengthen Kellogg global snacks business through acquisition
finalized today. The $ 2.695 billion acquisition further strengthens Kellogg Company's
competitive position in global snacks, making Kellogg the world's second-largest savory
snacks player.
Kellogg has acquired a terrific business, with exceptional employees, world-class
manufacturing facilities, iconic brand awareness, and a tremendous platform for growth, said
John Bryant, Kellogg Company's president and chief executive officer. "The addition of
Pringles to our portfolio significantly advances the company's strategic goal of building a
global snacks business on par with our global cereal business, and expanding our global
footprint." The Pringles acquisition nearly triples the size of Kellogg Company's international
snacks business, and adds a complementary product to the company's high-quality snacks
brands including Keebler, Cheez-It and Special K Cracker Chips.
Pringles is the world's second largest player in savory snacks, with $1.5 billion in sales across
more than 140 countries. Easily identified by its unique saddle shape and distinct packaging,
and with more than 80 flavors, snack lovers worldwide have made Pringles a snack aisle
favorite for more than four decades.

Kellogg has been grappling with slow overall growth but the snacks category is growing
faster than cereals. Pringles can help Kellogg build upon its snacks business to expand into
other markets, thanks to the brand's existing overseas distribution system. The all-cash deal,
which is expected to close this summer, will enable Kellogg to enter new markets in Europe,
Asia and Latin America with its snacks

Acquisition Talk:Kellogg Co. agreed to acquire Procter & Gamble Co.s Pringles potato chip business for
about $2.7 billion in cash to triple its global snacks sales after a deal with Diamond Foods
Inc. (DMND) fell through.

The transaction will reduce Kelloggs earnings by as much as 16 cents a share initially. The
purchase gives Kellogg a brand with more than $1.5 billion in sales in 140 countries and a
platform to grow in emerging markets. Kellogg Chief Executive Officer John Bryant said on
a conference call that the company is working to boost its global snacks business, which
includes Cheez-It, Townhouse crackers and Keebler.

Kellogg rose 5.1 percent to $52.87 at the close in New York. P&G, based in Cincinnati,
increased 0.1 percent to $64.55. Diamond gained 5.2 percent to $23.46.

The purchase would be the largest in the U.S. diversified foods industry since Nestle SA
acquired Kraft Foods Inc.s (KFT) North American pizza business for $3.7 billion two years
ago, according to data compiled by Bloomberg.

From the following figure, we can see that the priceless brand return is very high. So if
kelloggs acquire priceless then they would get a very large advantage in case of sale of
snacks. This would be a very profitable acquisition of Kelloggs.

Globally Snack Sales:Snack sales total $48 billion a year in developed markets and $15 billion in emerging
markets, according to Kellogg . Global snack sales have grown 4.3 percent a year from 2005
to 2010 in developed markets and 9.6 percent a year in emerging markets.

Kellogg expects to incur one-time costs of $160 million to $180 million from the acquisition.
The company expects to generate $10 million in savings the year of acquisition, more next
year and then as much as $75 million annually thereafter.

The deal makes strategic sense for Kellogg, Alexia Howard, an analyst at Sanford C.
Bernstein & Co. in New York, said in a research note today. While Kellogg said savings will
equal 3 percent to 5 percent of sales, Howard estimates savings from large acquisitions
average 8.3 percent of sales, so Kellogg could end up finding more benefits.

Big stories behind the acquisition:

When Kellogg bought Keebler a decade ago it was entirely domestic business that time
Kelloggs snack business was relatively underdeveloped.
Diamond Food had previously agreed to buy Pringles for 1.5Billion in stock and assumption
of $850 million in debt. The deal was collapse after diamond foods replaced chief executive
officer and related ear found payments to growth had been booked in the wrong period.
That time P&G told to the other party who are interested. Some of the private equity firms
were ready for the process. The consumer products company was seeking a deal that could
close quickly and that employees would support to help make up the for the uncertainty that
had clouded the diamond Foods tie up. Between this Kellogg was not there in previously
bidding process. Kellogg didnt have much focus on the Global snacks at that time.
After the deal would Value Pringles at about 11 times earnings before interest taxes
depreciation and amortization. In 66 comparable deals globally since 2007 the median paid
by buyers was about 7.6 times EBITDA. There was almost 1000 transactions in diversified
foods in the past 5 Years. Once appeared that Diamond deal could fall apart following the
conclusion of an internal investigation last week than Kellogg moved quickly and issue new
debt for acquisition. Kellogg was buy Pringles for $2.7 Billion.

Story of the Pringles:

Pringles were created by P&G in 1968 when they were known as Pringles Newfangled
Potato Chips. From 1967 to 2007 springle is successfully marketed globally after that some
snack manufacturers said that Pringle faild to meet the definition of potato chip.The Us Food
& Drug Administration Weighted in on the matter.In 1975 They ruled Pringles could use
ChipTheir product has to be change. In the april 2011P&G decide$ 2.35 billion sale the
brand to the diamond Foods California. But after that deal was cancelled and Kellogg took
over the Pringle Brand.

Post Acquisition:
After the acquisition of Pringles Kellogg become a no. 2 snack company in the world after
Pepsi co. and Fritolay.It was a second chance when Kellogg buy Pringles after the current
owner .

Marketing Point of View:

There are several facts which can define the marketing prospective of Kellogg to choose the
Pringles brand of P&G.
Prevviously Kellogg was not the part of snacks segment so it help to expand into global
snacking company.
Kellogg gets mostly earn their revenue in north America and Pringles might grow faster .It is
difficult to quantify the growth of global market but It is clear that snacking is gaining more
popularity in United states as more people adopt.
Another marketing strategy which Kellogg adopted is slogan. After acquired the Pringles
they made popular slogan. Take an Example a slogan which is popular in USA Once you
POP you can not stop that benefited the shipment of snack brand increased 5% in the last
quarter.
Another fact is Kellogg said that its debt is likely to increase by about $2 billion and that will
limit stock buybacks for about 2 Years to allow the company to reduce its debt.
Another thing is Packaging of Pringles brand product which is iconic tube and is sold more
than 140 countries and gets 2/3rd of its 1.5 billion in annual revenue.
The Kellogg forecast another marketing prospective which can indicate that between 2008
and 2018 the number of Snacking occasions throughout the day in the US set to increase by
19% .According to the market Research the past year sales of the snacks food rose3.3% to
$16.6 billion thats on the top of a 1.8% growth the previous Year.

Current scenario:
Today Kelloggs flexibility and adaptability towards consumer needs is very specific They
always think ahead of their customization of their product and take a challenges of changing
food habit.

Conclusion:
After the acquisition done Kellogg walk one step ahead toward the global snacks market.
After the completed the acquisition procedure they have taken 2nd position Globally in snacks
market. So acquisition that give a new growth path and achievement which is never happened
before.But apart from that company faced few problem which is create a barrier infront of
their snack sales. The habit Barrier and the Price Barrier is created a big problem and
competition is so high that the company increase the advertisement which causes the increase
of the cost of the good and reduce the profit margin on the sales revenue.