Glenboden M & A Originations

Kellogg finally re-enters M&A game with bold move in Russia

Priority Rating priority rating 3
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Origination Status company acquisition announced, January 2008
Asset United Bakers Group (Russia), leading domestic bakery products maker
Buyer Kellogg Company (USA), global no.1 breakfast cereals producer
Seller International Moscow Bank, Alfa Capital Partners
Buyer Rationale market entry into Russia
Seller Rationale attractive valuation, timing
NBs United Bakers was established in 2002 by private equity funds with EBRD backing
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It’s been at least six years since Kellogg made a significant acquisition. We in Europe had almost forgotten about the company, ever since they retreated on this continent to a handful of core national markets, more than 10 years ago. Now, like other US giants notably Wrigley, Kellogg has chosen Russia as the stage for their big strategic play. One can anticipate that this is not the last acquisition they will make, during this cycle.

It looks like they’ve taken on a real challenge, with United Bakers. The company may have no.1 or 2 market positions in its core categories of crackers, biscuits and breakfast cereals, as Kellogg insists, but it looks like a company in need of major restructuring; its net sales of $ 100 mln are spread across 4.000 employees and six manufacturing facilities located throughout Russia. Kellogg probably also paid a high price for the business, maybe upwards of x4 Sales when one considers recent precedents.

Still, the ‘game is worth the candle’ for Kellogg; depending on Nestle’s activities in the country, Kellogg has the opportunity to retain UB’s huge market share, said to be over 80% in ready-to-eat breakfast cereals, in the fast –growing Russian market. An excellent move, for sure, and long overdue.

So where next for Kellogg ? Rumour has it they’ll finally re-enter other emerging Europe countries, most notably Poland.

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