Kellogg Company (NYSE: K) today announced it has entered into an agreement to acquire Ritmo Investimentos, controlling shareholder of Parati S/A, Afical Ltda and Pádua Ltda ("Parati Group"), a leading Brazilian food group. The acquisition, the company's largest in Latin America, furthers two of Kellogg's strategic priorities — becoming a global snacking powerhouse and expanding its presence in emerging markets.
Parati Group offers a wide range of iconic regional brands, including Parati, Pádua, Minueto, Zoo Cartoon and Hot Cracker biscuits, which make up approximately half of the company's business. The rest of the business is comprised of Trink powdered beverages, Parati Lamen instant noodles and Parati dried pasta. Parati Group Net Sales are expected to be approximately R$600 million (or about US$190 million at current exchange rates).
"With its outstanding portfolio of popular consumer brands, Parati Group is an excellent strategic fit for Kellogg and our business in Latin America," said John Bryant, Kellogg Company Chairman and CEO. "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."
Parati Group has 3,200 employees, including a salesforce of approximately 1,300 people serving about 60,000 customers directly. This includes a strong presence in small to medium – or high-frequency – retail stores in Brazil, which are critical to reaching the country's growing population. The company also has five distribution centers and two production facilities with room for expansion.
"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," said Maria Fernanda Mejia, President, Kellogg Latin America.
"Parati Group has built a very successful business over the past four decades and we have a great deal of admiration and respect for them," continued Mejia. "They are highly entrepreneurial and strive to provide great-tasting foods consumers love while also fulfilling their founder's legacy. We are thrilled to welcome Parati Group to the Kellogg family."
Today's announcement marks Kellogg's fourth emerging market acquisition in the last two years. In that time, Kellogg has acquired companies in each of its international regions, including Europe (Bisco Misr and Mass Food Group in Egypt) and Asia Pacific (a 50 percent stake in Multipro in Nigeria and Ghana). The addition of Parati further enhances the company's emerging market growth strategy.
Financial Details of the Transaction
The acquisition by Kellogg, through its subsidiary Pringles Serviços e Comércio de Alimentos Ltda, is subject to customary closing conditions and is expected to close in late 2016. The purchase price is R$1.38 billion, or roughly US$429 million at current exchange rates, and it will be an all-cash transaction. To preserve financial flexibility, Kellogg intends to reduce its expected share repurchases in 2016 to $450-550 million, versus previous guidance of $700-750 million.
The profitability of this business, along with expected revenue and cost synergies, should create financial value for shareowners relatively quickly, even accounting for an initially reduced level of share repurchases. In 2016 and 2017, it is expected to be neutral to Comparable-basis EPS, depending on exchange rates, with only a slight impact on Reported EPS because of one-time costs of $(0.01) per-share in both years. The acquisition is expected to be accretive on both Comparable and Reported EPS in 2018 and thereafter.
About Kellogg Company
At Kellogg Company (NYSE: K), we strive to make foods people love. This includes our beloved brands – Kellogg's®, Keebler®, Special K®, Pringles®, Kellogg's Frosted Flakes®, Pop-Tarts®, Kellogg's Corn Flakes®, Rice Krispies®, Cheez-It®, Eggo®, Mini-Wheats® and more – that nourish families so they can flourish and thrive. With 2015 sales of $13.5 billion and more than 1,600 foods, Kellogg is the world's leading cereal company; second largest producer of cookies, crackers and savory snacks; and a leading North American frozen foods company. Through our Breakfasts for Better DaysTM global hunger initiative, we've provided more than 1.4 billion servings of cereal and snacks to children and families in need around the world. To learn more, visit www.kelloggcompany.com or follow us on Twitter @KelloggCompany, YouTube and on Social K.
Forward-Looking Statements Disclosure
The "forward-looking statements" contained herein inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in those statements, including the realization of the anticipated benefits from the acquisition of Parati, projections concerning the company's share repurchases, sales, operating profit and earnings, and the other factors discussed in the risk factors section of Kellogg Company's most recent annual report on Form 10-K. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to update them publicly.
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SOURCE Kellogg Company