The upcoming acquisition of WK Kellogg by Ferrero isn’t surprising to Wharton management professor Emilie Feldman, who studies corporate strategy and governance.
She said the $3.1 billion agreement — which will put America’s most iconic cereal brands, including Frosted Flakes, Froot Loops, and Raisin Bran, under Italian ownership — is the latest in a number of deals that have reshaped the consumer packaged goods (CPG) industry over the last couple of decades. And she expects more will happen as these companies try to keep up with shifting tastes and economic pressures.
Feldman noted the shake-up that resulted in Kraft Heinz, which became one of the largest food and beverage companies in the world. In 2012, Kraft separated its North American grocery business from its booming global snacks business. The snacks company became Mondelez, while Kraft merged with Heinz in 2015.
The mega-company has turned yet another page in its saga, announcing this month that it will split into two publicly traded businesses. One will focus on brands that are doing well with consumers, such as Kraft Mac & Cheese, while the other will handle struggling product lines, including Kraft Singles, Lunchables, and Oscar Mayer.
“Notice the key themes coming out: separation of fast- and slow-growing businesses, and then a subsequent merger or acquisition of one of the parts,” Feldman said in an interview on This Week in Business. (Listen to the podcast.)
Kellogg’s moves are not unlike Kraft’s. In 2023, the company split into WK Kellogg, which owns the American cereal brands, and Kellanova, which has a portfolio of international snacks and cereals. Mars quickly snapped up Kellanova, and Ferrero grabbed WK Kellogg.
“Again, it’s separating high- and low-growth assets, really trying to tailor to consumer preferences in a fast-moving and taste-changing environment,” Feldman said.
“If you look at the laundry list of failed mergers, pretty much all of them unwound after 10 years.”— Emilie Feldman
External Pressure Fuels the Breakup-merger Cycle
Plenty of external pressures are weighing on CPG companies, the professor said. They range from inflation to investor activism to health movements. For example, billionaire investor Nelson Peltz waged an unsuccessful campaign about 12 years ago to get PepsiCo to split its Frito-Lay snacks business from its beverages — a move that Feldman thinks could still happen in the near future. She pointed to Elliott Management, which holds a $4 billion stake in PepsiCo. That firm is now pushing the company to make changes to its lagging beverage unit to boost performance.
Feldman also highlighted consumption changes. During the pandemic, sales of snacks soared while everyone was stuck in their homes. Now, the popularity of GLP-1 weight loss drugs is helping people push away empty calories, driving down snack purchases in some categories.
“Everyone knows that people are trying to eat healthier now — higher protein, less snacks, less sugar, less carbs. I think there are some fundamental shifts in what consumers are doing,” Feldman said.
The breakup-merger cycle isn’t limited to consumer packaged goods. Feldman noted that many pharmaceutical companies have also spun off their consumer health brands in recent years and might reacquire them in the next 10 to 15 years.
“You can see there’s a whole bunch of exogenous factors that are reshaping the landscape and perhaps driving some of these transactions. But my broader view is that this is actually kind of a consistent pattern that we observe over and over again across many different industries,” she said.
The speed of the breakup-merger cycle also isn’t surprising, she said, because research shows that it takes an average of seven years for companies to divest a failed acquisition.
“If you look at the laundry list of failed mergers, pretty much all of them unwound after 10 years,” Feldman said, pointing to the 2015-2025 Kraft Heinz cycle.
“Notice the key themes coming out: separation of fast- and slow-growing businesses, and then a subsequent merger or acquisition of one of the parts.”— Emilie Feldman
Merger Gives Ferrero a ‘Seat at the Table’
Ferrero has been on a spending spree in the last few years, buying up Nestlé’s U.S. confectionery business for $2.8 billion in 2018, Kellogg’s ice cream brands in 2019, and Italian frozen baked goods maker Fresystem in 2023. According to a Reuters article, the privately held company has a track record of revitalizing products. Demand for Butterfinger, for example, increased after Ferrero relaunched the candy bar using better ingredients and packaging.
In a statement, the company said it plans to “invest in and grow” Kellogg’s cereal brands. The acquisition is pending regulatory approvals and expected to be completed by the end of the year.
Feldman said that for CPG firms like Ferrero, scale matters. The acquisition helps Ferrero, maker of globally popular Nutella spread, gain even wider access to U.S. consumers.
“The way that I see this is they’re getting a seat at the table in the American market,” she said.
