Money centre banking giants, J.P. Morgan and Citi, have provided Mars with “financing support” for the $35.9 billion takeover of Kellanova. This is the largest deal of the year and the largest in the food industry outside of alcohol-related deals involving beer company AB InBev.
In fact, the two banking giants (Citi is the financial adviser to Mars) will provide all of the $29 billion in cash for the acquisition—a major gamble on the privately owned Mars’ ability to make this giant deal pay off.
Reuters reported that Mars’ purchase of Kellanova is the largest by the company in 30 years. The company has made at least 185 acquisitions collectively worth $81 billion, according to verified data from market research firm Dealogic.
Mars is estimated to have annual revenues of around $50 billion, but this is only a rough estimate. Being private, its exact figures are unknown.
The company’s last big deal was the $23 billion purchase of the Wrigley’s gum company in 2008 (during the Global Financial Crisis) with financial backing from Warren Buffett’s Berkshire Hathaway.
This raises the question of why cash-flush Berkshire and Warren Buffett were not involved in this deal. Buffett certainly likes the sector, even if he overpaid for his share of the Kraft Heinz takeover a decade ago. Coca-Cola, a key consumer products company, is an original anchor investment for Buffett.
Reuters reported that Valerie Mars, the 65-year-old great-granddaughter of Franklin Clarence Mars, has been the driving force behind Mars’ expansion over the last 30 years. Mars started the company as a candy factory in 1911.
As most Mars family members retired and installed trusted lieutenants, Valerie remained and spearheaded most of the company’s major deals, including the $23 billion purchase of chewing gum maker Wm. Wrigley Jr. Company.
As a result, the company’s annual net sales grew from just over $10 billion when Valerie Mars joined in 1996 to more than $50 billion this year. Kellanova will increase this by $13 billion or more.
This could push the combined company past Unilever, which had sales of $64.6 billion last year. Nestlé is the world’s largest fast-moving consumer goods group with sales of more than $107 billion in 2023. Pepsi is second with sales of more than $91 billion.
So, the merged company could become the world’s third-largest food and packaged goods group, giving it more clout when dealing with giants like Walmart in the US and Carrefour in Europe, as well as privately owned operators, Lidl and Aldi.
As Valerie Mars prepares to step down as senior vice president of corporate development later this year, she helped the company’s CEO Poul Weihrauch negotiate the deal with Kellanova CEO Steve Cahillane, Reuters reported.
Mars had $6.6 billion in cash on hand at the end of December, as well as access to $4 billion in credit lines, according to credit ratings agency S&P Global. It also secured loans from the two giant banks for the deal.