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CNBC'S LAUREN HIRSCH: FERRERO AND HOSTESS VIE FOR KELLOGG'S KEEBLER COOKIE BUSINESS, IN A ROUGHLY $1.5 BILLION DEAL

Ferrero and Hostess vie for Kellogg's Keebler cookie business, in a roughly $1.5 billion deal

  • Ferrero and Hostess Brands are lead contendors for Kellogg's Keebler, Famous Amos and fruit snacks businesses, people familiar with situation tell CNBC.
  • The deal could value the brands at roughly $1.5 billion, the people say.
  • Any deal is still likely more than a week away, the people say.

Lauren Hirsch

Hostess Brands and Nutella-owner Ferrero are competing as front-runners to buy Kellogg's Keebler, Famous Amos and fruit snacks businesses, in a deal that could value the brands at roughly $1.5 billion, people familiar with the situation tell CNBC.

The deal talks come as Hostess and Ferrero look to take advantage of a shakeup across the food industry. Big Food companies are shedding brands that were neglected in favor of focusing on moneymakers. Companies like Hostess and Ferrero are placing a bet they can revive those brands with proper investment and focus.

Both Hostess and Ferrero put in final offers for the cookie and fruit snacks brands on Thursday. Other brands up for sale include Murray and Mother's cookies and Stretch Island fruit snacks. While other buyers are still in contention, the two are viewed as front-runners, the people said. Any deal is still more than a week away, they said.

Hostess, which has a market capitalization of $1.2 billion, is considering acquiring the Keebler cookie business through a "Reverse Morris Trust," said the people. The Reverse Morris Trust or RMT is an unusual deal structure that allows for a tax-efficient combination of two similarly sized companies.

The talks come as food companies including Kellogg, Campbell and Kraft Heinz are paring back their portfolios to focus resources on brands the companies can revive. Sales growth has stalled across the industry, and food giants are pouring more targeted efforts into fending off upstart on-trend competitors like Kind Bar and Beanitos chips. Simple scale and cost efficiencies are no longer the goal for Big Food brands.

"We need to make strategic choices about our business and these brands have had difficulty competing for resources and investments within our portfolio," Kellogg CEO Steve Cahillane said in a statement last year, when announcing the planned divestitures.

Shares of Kellogg, which has a market capitalization of $19.5 billion, have fallen 11 percent over the past year. Kellogg executives have pointed to Pringles, Cheez-Its and Rice Krispies Treats as brands it can revive with innovation and single-serve options.

Other Big Food brands potentially up for grabs include Kraft Heinz's Maxwell House coffee and Breakstone's cottage cheese business, which CNBC has reported the ketchup giant is considering selling. General Mills and Conagra have also said they are considering divestitures.

Kellogg competitor Campbell Soup is nearing the end of another cookie deal.

In its efforts to slim its portfolio, Campbell is selling its U.S. fresh food and Australian cookie and biscuit business, including Arnott's. The Australian business, valued at roughly $3 billion, received final offers last week, people tell CNBC. Oreo-owner Mondelez is seen as a front-runner for the brand, they said, cautioning Mondelez still faces competition from other companies, as well as potential anti-trust concerns.

Kellogg acquired Keebler in 2001 for $4.4 billion. At the time, part of its draw was the cookie brand's "direct-store delivery" platform, through which employees place the company's own products in stores, rather than ship from warehouses. So-called DSD gives a food company more control over ensuring proper display in grocery and convenience stores. But as in-store sales of products like cookies have fallen, it is less economical. Kellogg has since dropped DSD distribution.

Old brand, new life

Companies like Ferrero have shown how new attention can breathe life into previously neglected brands. Products like sweets and snacks, which still appeal to today's on-the-go consumer, have proven particularly amenable to renovation.

Ferrero last year bought Nestle's U.S. candy business for $2.8 billion, as part of the Swiss giant's efforts to refocus on its core food and nutrition brands. Ferrero has since relaunched Butterfinger, one of the brands it bought as part of the deal. In February, Ferrero unveiled its "better Butterfinger" campaign, promoting the candy bar's new recipe with larger peanuts, more cocoa and milk and no hydrogenated oils.

Ferrero, which was founded in Italy as a family business in 1946, has been on an acquisition spree over the past two years. Other deals have included its $1 billion acquisition of Ferrara Candy Company, the U.S. owner of Red Hots and Now & Later candies. The deal gave Ferrero the infrastructure to further expand in the U.S.

Hostess, meantime, has been eyeing deals to broaden its treats beyond Twinkies and Ho-Hos. Executive Chairman Dean Metropoulos told analysts last year the company has "looked at every snack acquisition that has been announced [that] year," but was put off by the sky-high valuations. The Twinkie-owner last year bought breakfast brands the Big Texas and Cloverhill from Aryzta.

The people requested anonymity because the information is confidential. Ferrero and Kellogg declined to comment. Hostess did not respond to a request for comment.

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