Mars-Kellanova deal likely to avoid antitrust hurdles and open door for more M&A

By James Rogers

Mars announced its almost $36 billion deal to acquire Pringles maker Kellanova this week

Mars's almost $36 billion deal to acquire Pringles maker Kellanova is unlikely to face significant antitrust opposition, say experts in mergers and acquisitions, and it could also open the door for other major deals.

"I don't think there'll be an issue. If you study it, the overlap isn't that great," Harry Kraemer, professor of leadership at Northwestern University's Kellogg School of Management, told MarketWatch. The privately held Mars, he noted, is a maker mostly of candy, as well as pet foods, while Kellanova (K) is primarily focused on snack foods.

"The probability of it going through is pretty good," said Kraemer, who was involved in more than 50 acquisitions when he was CEO and chairman of healthcare company Baxter International Inc. (BAX). He added, however, that the deal could face greater scrutiny under a Democratic than a Republican administration.

Related: Kellanova's stock climbs as Mars announces deal to acquire Pringles maker for nearly $36 billion

M&A lawyer Daryl Lansdale, vice chairman of law firm Norton Rose Fulbright, agrees that the deal will likely avoid antitrust opposition. "The businesses don't overlap to a large degree. It depends on how you define the market for what these companies do," he said. "It will be interesting, but it will not be problematic."

On Wednesday, Mars agreed to acquire Kellanova for $83.50 per share in cash in a deal valued at $35.9 billion, including assumed net leverage, the companies said in a statement. The deal represents a premium of approximately 44% to Kellanova's unaffected 30-trading-day volume-weighted average price as of Aug. 2, 2024, according to the companies. The deal is expected to close in the first half of 2025.

Kraemer said he wasn't surprised by the deal, which he described as "very, very" logical. "Because Mars is a private company, they have got the cash resources where they borrow what they need to. It fits very well for them," he said.

Related: Why a Mars acquisition of Pringles maker and Kellogg spinoff Kellanova makes sense

Lansdale of Norton Rose Fulbright, which is not involved in the Mars-Kellanova deal, said that while there have been some major deals this year - such as Capital One Financial Corp.'s (COF) planned acquisition of Discover Financial Services (DFS), Diamondback Energy Inc.'s (FANG) purchase of Endeavor Energy, ConocoPhillips's (COP) all-stock deal for Marathon Oil Corp. (MRO) and Home Depot Inc.'s (HD) acquisition of SRS Distribution Inc. - overall deal volume has been down. The possibility of interest-rate cuts from the Federal Reserve, however, could facilitate a "nice end to 2024," he said.

"I think it's getting better as we have gone into the third quarter. This [Mars-Kellanova deal] has the potential to spark more deals," Lansdale told MarketWatch. "Mars is going to borrow $29 billion of debt to do this acquisition. I believe this is the biggest bridge-loan financing over the last 12 months. ... It's an improving financing environment."

The energy sector continues to be ripe for transactions, and the Mars-Kellanova deal could also spark more deals in the packaged-food industry, according to Lansdale. "The consumer is under pressure. Some of these companies are looking for critical mass to dive cost savings," he said.

Related: Kellanova's stock climbs on top- and bottom-line beats, plus lifted outlook

As for whether the Mars-Kellanova deal heralds more major M&A deals, Northwestern University's Kraemer said a number of factors are at play. "A lot will depend on the election, a lot will depend on whether the recession continues or not, a lot will depend on what happens with interest rates," he said.

-James Rogers

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08-15-24 1649ET

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