CNBC’s “Squawk Box Europe” anchors discuss Nutella-maker Ferrero's reported takeover bid for cereal maker WK Kellogg.

Chicago

Shares of WK Kellogg rose significantly following reports that Ferrero, the Italian company behind Nutella and Ferrero Rocher, is nearing a $3 billion acquisition of the US-based cereal maker. According to the Wall Street Journal, the deal could be finalized soon, marking another major move by Ferrero to strengthen its position in the US market.

WK Kellogg was spun off as a standalone business in 2023, separate from Kellanova, which owns snack brands like Pringles. The potential acquisition comes amid broader industry trends of consolidation and shifting consumer preferences, with branded cereals facing competition from private labels due to inflation. Ferrero, already the third largest US candy company, has previously expanded through acquisitions such as Nestlé's US chocolate business.

WK Kellogg in the takeover crosshairs — Ferrero reportedly eyes a bid

Shares of Kellogg soared in extended trade after reports that the Italian chocolate company Ferrero is close to a $3 billion deal to buy the cereal giant. This is according to the Wall Street Journal, which said a deal could be finalised this week. Well, that didn't take long, did it? Now, Ferrero, which makes Nutella and Ferrero Rocher, is looking to expand its presence in the US markets. W.K. Kellogg was spun off as a standalone company in 2023. It's separate from Kellanova, of course, which is also housing snack brands such as Pringles and is in the process of actually being sold to Mars for $36 billion. Meanwhile, Ferrero has grown to become the third largest U.S. candy company behind Hershey's and Mars. As part of its expansion, it finalised a deal to in 2018 to buy Nestlé's U.S. chocolate business for $2.8 billion. Well, the first thing to say here is, of course, we're we're all we're all a bit. Wow. It's a European company buying an American company and iconic brands in Europe buying iconic brands in the States. We're kind of not used to that at the moment. So that's kind of like the first. Well, the second thing is, look, you know that. I mean, viewers will know I'm I'm I'm holier than thou when it comes to consumption and nutrition and what have you. And I've got to be brutally honest and go with my heart on this one. I look at the product list of Kellogg's and I'm wondering how 21st century they are, given all of our concerns about health, about nutrition, about sugar, about ultra process as well. And I'm just wondering what they can do with the portfolio to, dare I say it, make it a little bit more healthy in the 21st century. I love how you're looking at me with a very targeted response. No, no, no, no. I just kind of I mean, I mean, they will come back at me and say they've got healthy products and it's all part of a healthy balanced diet. And actually the special K and stuff is healthy. So I appreciate there is another point of view. Personally, there are certain things that they produce, which I would suggest maybe you need to tweak what your diet is. You know, I've done a deep dive on some of the ultra processed foods, too, and they have altered the recipes of some of these traditional products that really never ticked any healthy box whatsoever. But I think the reshaping of portfolio is the story that we've seen across the entire sector. I've got to say no one's done more due diligence on Ferrero Rocher than me. I've unwrapped a few of those gold wrappers in my time. And, you know, it is a terrifically strong brand. And that's what you're seeing in this era. Very strong brands are surviving. The other big tailwind here has been just how strong the chocolate market has been. High chocolate prices, a premium end of the market that's still performing well. We've got a lot of sector disruption taking place. And don't forget trade tariffs, the inflation story that's impacted consumers in recent years. That's all caught up with some of the brands in this space. So those that are stronger are using the moment, their stronger position to leverage that and getting into bigger plays. I mean, it was Wells Enterprise, another company in the space that we saw consolidation from Ferrero's perspective recently. So I think it's just taking that baton and it's running a little bit further with it on consolidation. When you look at the share price reaction, a stock that moves more than 50 percent on a story suggests that none of this was priced in. I mean, this is this is a company, Kellogg, that was spun out from the parent company, separated. And now it's just a one point five billion dollar company. It was in the lead up to yesterday's announcement because it wasn't clear what the path forward would be. I mean, you talk about the importance of brand. And yes, I think that's true to an extent. But actually, it's hurt Kellogg recently because consumers in the U.S. have been switching away from branded cereals to private label, which have been cheaper as inflation took off in the pandemic. So that's been one of the big headwinds for Kellogg. But when a stock bounces that much, I think it's really taken the market by surprise. And it's not clear what Ferrero's plan would be for how to elevate this brand, given, yes, they can tout the benefits of fiber and things that go into cereal. But the reality is this is not the direction that American consumers are going in. If you can substitute, then you're not a brand anymore, in my view. I mean, that just says brand destruction. If you can't hold on to a consumer in a climate where they're downgraded to some sort of other no name brand.

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