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The auction for Kellogg Company’s [NYSE:K] cookie and fruit snacks business is seeing interest from financial sponsors Clayton Dublier & Rice and Apax Partners, said five sources familiar with the situation.
Platinum Equity is also circling the asset in the second round of the process, these sources and a sixth source familiar said. Charlesbank Capital Partners is another sponsor around the process, three of the sources said, with two adding that KKR is in the mix.
Snack cake giant Hostess Brands [NASDAQ:TWNK] along with Italian food company Ferrero and US candy group Hershey [NYSE:HSY] are strategics looking at the brands, which include Famous Amos and Keebler cookies and Stretch Island fruit snacks, two of the sources said.
Mexican snack and beverage group Arca Continental [BMX:AC] is another suitor around the asset, the first and third source said. The MXN 194bn (USD 10bn) market cap company is the second largest Coca-Cola bottler in Latin America and operates a US snack business. It reported MXN 20.6bn (USD 1bn) in EBITDA for the first nine months of 2018 and MXN 15.6bn (USD 820m) in cash.
On its 2018 earnings call on 7 February, Kellogg CFO Fareed Khan told investors that the Battle Creek, Michigan-based company expects the snacks divestiture process to end in 2Q19. He said it was too early to offer guidance on how the asset sale will impact earnings or what will be the cash proceeds.
Two of the sources said that Hostess is a motivated buyer and is likely aggressively pursuing the asset given the synergies. Executives of the Missouri-based company have said they believe acquisitions are the best use of its cash.
As of 30 September 2018, Hostess reported a leverage ratio of 4.5x EBITDA. It is projecting it will generate up to USD 190m in EBITDA for 2018 and currently has a USD 1.1bn market cap.
In early 2018, Ferrero reached a deal to acquire Nestle’s [SWX:NESN] US confectionary business for USD 2.8bn. Credit Suisse, Lazard and Davis Polk advised the family-owned company on the deal.
The Kellogg assets collectively generate EBITDA in the USD 140m to USD 150m range and could fetch 10x to 12x EBITDA valuation, as reported. Last year, this news service reported that Kellogg was being advised by Evercore and Goldman Sachs, and that the brands were expected to generate roughly USD 900m in net sales for 2018.
On 18 January, CNBC reported that the companies were attracting significant strategic interest, with Ferrero Candy, B&G Foods [NYSE:BGS] and Hostess each submitting first-round bids.
CD&R, KKR, Apax Partners and Hershey declined to comment. Kellogg, Platinum Equity, Charlesbank, Ferrero and Arca Continental did not return requests for comment.
by Bhavna Kaul, Emily Fasold and Anastasia Donde with additional reporting by Alex Plough
Feb 13 2019