Tony the Tiger and the Keebler Elves are joining forces to create a more diversified food giant with about $10 billion in annual sales. The Kellogg Co. (NYSE: K) announced Wednesday that it has agreed to buy Keebler Foods Co., the No. 2 U.S. cookie maker. Battle Creek, Mich.-based Kellogg was already the acknowledged front-runner in the bidding for Elmhurst, Ill.-based Keebler, which also makes other snacks. The transaction with Keebler and Flowers Industries Inc., Keebler's majority shareholder, is valued at more than $3.6 billion, including cash and Keebler's debt, according to The Associated Press. Kellogg said it will pay $42 for each of Keebler's estimated 86.3 million shares of stock and assume Keebler's debt in a deal expected to close in the first quarter of next year. Other possible bidders for Keebler once included Groupe Danone of France (with its Dannon Co. in the United States) and Cadbury Schweppes Plc of the United Kingdom (the international soft-drink giant). But analysts said Kellogg, with nearly $7 billion in annual sales, was the likely buyer with the most need for the acquisition. Keebler, with about $2.7 billion in annual sales, would reduce Kellogg's dependence on its ready-to-eat cereals. In fact, Kellogg is ranked No. 1 in the world for making and marketing packaged cereals. Kellogg's announcement also cited the boost to Tony the Tiger's domain: "This portfolio of Kellogg's cereals and convenience foods and Keebler's cookies and crackers will team the popular Keebler Elves and their Hollow Tree with world-famous Kellogg icons such as Tony the Tiger and Snap! Crackle! Pop!" Claiming the merger would curb operating costs for both companies, Kellogg chairman and chief executive Carlos M. Gutierrez and Keebler chief executive Sam K. Reed said they expect these merger benefits: