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Kellogg in the Chips With Pringles Deal: Analyst

Published: Wednesday, 15 Feb 2012 | 12:26 PM ET

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By: Margo D. Beller
Special to CNBC.com

Source: pg.com
Pringles
Kellogg’s deal to buy Pringles snacks from Procter & Gamble for $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 [K Loading... () ] business is now 45 percent snacks, making it “more of a competitor for a PepsiCo [PEP Loading... () ]in the U.S. now. This gives them earnings power to subsidize the rest of the business.”

Earlier on CNBC Wednesday, 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 [PG Loading... () ] had planned to sell Pringles to Diamond Foods [DMND Loading... () ] but the deal ended after Diamond announced it was replacing its CEO and CFO following an internal investigation.