Kellogg gains "controlling stake" in Brazil's Parati Group
Kellogg announced another emerging market acquisition, expanding in Brazil
US snacks-to-cereal giant Kellogg has become a "controlling" shareholder in Brazilian snack maker Parati Group through its acquisition of Ritmo Investimentos.
Kellogg will pay BRL1.38bn (US$429m) for Ritmo, a São Lourenço do Oeste-based holding company. The company did not disclose the size of Ritmo's stake in Parati.
The acquisition is Kellogg's largest to date in Latin America and the company said it furthers two strategic priorities, providing increased access to emerging markets and strengthening its global snacking platform.
Around half of Parati Group's BRL600m annual sales are generated by its snacking brands, including Parati, Pádua, Minueto, Zoo Cartoon and Hot Cracker biscuits. The rest of the business is comprised of Trink powdered beverages, Parati Lamen instant noodles and Parati dried pasta.
"With its outstanding portfolio of popular consumer brands, Parati Group is an excellent strategic fit for Kellogg and our business in Latin America," Kellogg chairman and CEO John Bryant said. "Brazil is the largest economy in Latin America and this acquisition will allow us to accelerate our growth and improve our margins in the region. This means more growth for the core Parati Group business and our well-loved Kellogg brands."
Kellogg is likely to use Parati's extensive sales reach, with a sales force of approximately 1,300 people serving 60,000 customers directly in the country. In particular, Kellogg flagged Parati's "strong presence" in medium- or high-frequency stores, a sector that the US group said is "critical" to reach Brazil's consumer base.
"The combination of Parati's portfolio and sales and distribution capabilities with Kellogg's global resources – including innovation expertise, extensive shopper insights and customer marketing strength – provides tremendous opportunity. Bringing our companies together enables us to expand our footprint in a rapidly-growing market," Maria Fernanda Mejia, president of Kellogg's business in Latin America, said.
In order to finance the all-cash transaction and preserve financial flexibility, Kellogg said it intends to reduce its expected share repurchases in 2016 to $450-550m, versus previous guidance of $700-750m.
Nevertheless, the company stressed that the deal is expected to deliver value to shareholders. "The profitability of this business, along with expected revenue and cost synergies, should create financial value for share owners relatively quickly, even accounting for an initially reduced level of share repurchases," Kellogg said. In 2016 and 2017, it is expected to be neutral to comparable earnings per share. One-time costs mean it will snip one cent off reported earnings per share, the company predicted. The deal is expected to be accretive to earnings in 2018 and beyond.
This latest deal is Kellogg's fourth emerging market acquisition in the last two years. The company has taken control of Bisco Misr and Mass Food Group in Egypt and acquired a stake in Multipro, which has operations in Nigeria and Ghana.
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