Kellogg to buy Pringles from P&G for $2.7 billion

Wed Feb 15, 2012 11:41am EST
 
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By Martinne Geller and Jessica Wohl

(Reuters) - Kellogg Co agreed to buy Pringles potato chips from Procter & Gamble Co for $2.7 billion in a cash deal that will nearly triple the cereal maker's international snack business.

The transaction will also let household goods maker P&G finally leave the food business after its agreement with Diamond Foods Inc fell apart.

Shares of Kellogg, which is aiming to expand a snack portfolio that already includes Keebler cookies, Cheez-It crackers and Kashi snack bars, rose 6 percent in Wednesday morning trading.

Adding Pringles chips to the mix will increase the size of Kellogg's snack business to where it will account for as much of total revenue as its well-known cereal business, the world's largest, with brands like Special K and Rice Krispies.

P&G had agreed to sell Pringles to Diamond Foods Inc last year, but that deal fell apart this month following the discovery of improper accounting that led Diamond to replace its chief executive and finance chief. The U.S. government is looking into Diamond's accounting practices.

Diamond said on Wednesday that it does not have to pay any break-up fee, and its shares rose nearly 5 percent.

With Diamond's future unknown, some analysts have begun to question the attractiveness of its snack food brands, Kettle potato chips and Pop Secret popcorn, to another buyer.

Kellogg Chief Executive John Bryant, in an interview with Reuters, declined to comment on his company's interest in Diamond or any of its brands. He did admit, however, that Diamond's brands made more strategic sense to Kellogg, now that it will become the world's second-largest savory snack company behind PepsiCo Inc's Frito-Lay.   Continued...

 
Cans of Pringles are seen on display in New York April 5, 2011. REUTERS/Shannon Stapleton