Kellogg’sdeal to buy Pringles snacks from Procter & Gamblefor $2.7 billion in cash will give them a bigger chunk of the snack market while subsidizing the company’s core cereal business, UBS analyst David Palmer told CNBC Wednesday.
“We do like the deal. It helps them get bigger in snacking and certainly gives them a source of earnings power” at a time Kellogg's cereal business faces more competition in the market, he said. “This helps them get bigger in a category that’s clearly expanding both domestically and overseas.”
Palmer, who has a $56 price target, said that with the acquisition, Kellogg’s business is now 45 percent snacks, making it “more of a competitor for a PepsiCoin the U.S. now. This gives them earnings power to subsidize the rest of the business.”
Earlier on CNBCWednesday, Kellogg CEO John Bryant said the deal “nearly triples the size of our international snack business” and takes Kellogg from being the world’s largest cereal company to the second-largest snack company.
P&G had planned to sell Pringles to Diamond Foodsbut the deal ended after Diamond announced it was replacing its CEO and CFO following an internal investigation.
Bryant told CNBC that when the opportunity to buy Pringles arose “we moved very quickly to make it a reality.”
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Disclosure information was not available for David Palmer or his company.