Mars intends to create a global powerhouse.
Shares of global snack company Kellanova (K 7.76%) are soaring on Wednesday, just a little over a week after the last time they soared. This is usually a sleepier stock, but today, a rumor was confirmed: Mars plans to buy the company for $35.9 billion. And that’s why Kellanova stock was up almost 8% at 10:30 a.m. ET.
An irresistible offer
In October, Kellogg Company spun off its North American cereal business as WK Kellogg, and the remaining brands and geographies became Kellanova. Management said that this would create a higher-growth snack business more attractive to investors. And apparently, it was attractive to privately held Mars as well.
Mars — parent company to snack brands such as Snickers and Skittles — intends to acquire Kellanova for $83.50 per share. As of this writing, that represents about 4% more upside for Kellanova stock.
RBC Capital analyst Nik Modi had previously suggested Kellanova could be worth $108 per share in a buyout — almost 30% more than the current buyout price. However, I believe Mars is being generous. Its offer is close to three times Kellanova’s sales. That’s a fair price for a food company with modest growth.
What should shareholders do now?
Let’s keep things simple. Here are the two most likely outcomes: The deal will go through, or it won’t. As to the first possibility, it may take time. And once it does, the stock has only about 4% upside left. Shareholders should ask whether that’s enough for them to keep holding now.
Shareholders should consider that Kellanova stock is trading at an all-time high right now and trading about 40% higher than its recent average. So if the deal fails to go through for whatever reason, I think it’s reasonable to expect a near-term drop in Kellanova stock.
I think it makes a lot of sense to sell Kellanova stock now and reinvest that money elsewhere.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Kellanova and WK Kellogg. The Motley Fool has a disclosure policy.
