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Dan Loney: Companies, especially,
it seems like, in the food
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industry, always seem to be in a
constant state of evolving in
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terms of what brands they want
to have in their portfolio. And
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that can lead to some
interesting decisions, thinking
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about mergers and acquisitions.
A recent move by chocolate maker
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Ferrero to buy WK Kellogg
brought forward some
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similarities to what we may have
seen a few years ago in and
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around Kraft Heinz. That was
picked up by our guest, Emilie
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Feldman, who's a management
professor here at the Wharton
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School, and she joins us to
share her thoughts. Hi, Emilie.
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Great to talk to you again. How
are you?
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Hey, Dan. Great to be back. Good to
talk to you too.
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So you talk about the
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similarities between what we're
seeing now with Ferrero and what
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we may have seen a decade or so
ago with Kraft Heinz. Explain
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what you're— what you saw there?
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Yeah, definitely. So kind of
rewinding here for a minute,
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what we saw with Kraft,
actually, was a really
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interesting scenario where this
integrated company separated its
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North American grocery business
from its faster-growing and more
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global snacks business. Biscuits
business, right? And so they had
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kind of these two separate
pieces. The biscuit business
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goes on today as a new company
called Mondelez. And Kraft, of
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course, was merged with Heinz in
2015. So notice the key themes
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already that are coming out.
Separation of fast and slow
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growing businesses, and then
subsequent merger acquisition of
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one of the parts. So fast
forward here to 2025, and we
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actually have two really
interesting things that have
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been happening in recent years,
right? So one is that a couple
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of years ago, Kellogg, a company
that was, of course, well-known
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for its classic cereals, broke
itself apart, right? Just like
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Kraft did back in the day,
separating its cereals business
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from its snacks business, right?
And so again, separating high-
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and low-growth assets, really
trying to tailor to consumer
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preferences in a fast-moving and
taste-changing environment. So
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interestingly, both of the parts
of that separated company were
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snapped up, right? So a couple
of years ago, in 2023, Mars
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bought Kellanova, which was
Kellogg's snacks business. And
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just last week, as you said,
Ferrero announced that it was
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buying the cereals business, WK
Kellogg. So I think it's really
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interesting to kind of note that
parallel of kind of separation
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followed by subsequent
acquisition, right, that we see
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in both of these scenarios,
especially given different
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dynamics that were occurring
among the two separated pieces.
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The final piece— oh, sorry.
- Go ahead. Go ahead.
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The final piece, just to add to it, is
that there's a really
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interesting coda to this whole
story that I've been kind of
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telling you here, which is that,
of course, last week, Kraft
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Heinz, this merged entity that
we were just talking about a
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moment ago, announced that it
was going to be potentially
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separating the North American
grocery business from kind of
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this integrated company. So
we'll see what happens next. But
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super interesting to kind of see
that same kind of replication of
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separation followed by,
dot dot dot.
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So is it something about— and
obviously, I think this is
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unique, because various sectors
will be in M&A in various
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levels. But within this kind of
food industry, is there
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something about the grocery
business that is drawing this
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attention right now? Or is this
just a dynamic of what this
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industry goes through on a
fairly regular basis?
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Yeah. I think it's a dynamic of what
goes on in this industry, right?
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Part of it, as I mentioned a
little bit before, is kind of
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changes in consumer taste.
So, of course, everyone
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knows that people are trying to eat
healthier now, higher protein,
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less snacks, less sugar, less
carbs, right? And so I think
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there are some fundamental, you
know, shifts, perhaps, in terms
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of kind of what consumers are
doing. You know, add to that,
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inflationary pressures, add to
that the rise of GLP-1s and
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weight loss drugs. So you can
see there's, like, a whole bunch
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of kind of exogenous factors,
maybe, that are reshaping the
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landscape a little bit and
perhaps driving some of these
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transactions. But I think my
broader view of this is that
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this is actually kind of a
consistent pattern that we
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observe over and over again in
across many different
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industries, right? So think
about pharmaceuticals. Right?
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Within the past five, seven
years or so, we've basically
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seen all of the pharmaceuticals
companies unwind all of the— and
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separate— all of their kind of
consumer health brands that you
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just buy off the shelf, for
example, at a pharmacy. You
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know, my prediction is that
within the next 10, 15 years,
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they'll all reacquire them,
right? And we've seen that
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actually kind of— that
cyclicality of winding and
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unwinding go on within that
sector. And I'm sure I could
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think of others, right? But we
definitely see that pattern of
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kind of acquisition, divestiture,
acquisition, divestiture.
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So it looks like that with some
of these moves, part of this is
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because of the US market. But
I'm wondering if there— are
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because Mondelez is obviously,
you know, a company, and— these
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companies have global reach. If
there are— if there is an
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element of global to this, it is
why they are looking to make
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some of these moves.
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Yeah, I would agree with that.
And I think that, you know, the
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biggest issue, especially in
kind of the CPG space, right, is
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that scale really, really
matters, right? And so—
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especially for a company like
Ferrero, which is, of course, a
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European company, right, think
about what it's done, actually,
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even putting aside everything
that we've been talking about
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over the past several years,
right? They bought some US ice
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cream brands. They bought
Nestle's US confectionery
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business consisting of brands
like Butterfinger— classic,
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canonical American chocolate
brands. Now they're buying
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Kellogg cereal, right? So I
think that the way that I see
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this, if I can kind of use a— use
a maybe appropriate pun— is that
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they're kind of getting a seat
at the table in the
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American market, right, given
kind of European presence.
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Right? But I think that idea of
kind of global scale and reach,
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but then depth within each of
these geographic markets really
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matters in this
space in particular.
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But should we be surprised that
a company like Kraft Heinz has
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their grocery business for about
a decade, and seemingly they're
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willing to move on from it after
just 10 years?
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Yeah, I think it's a really
interesting story. So there's a
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couple of pathologies that I
think are worth highlighting
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here, right? So one is that this
was a merger that was really,
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really challenged from the
beginning in terms of synergy
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realization and in terms of post
merger integration. So they had
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a terrible time, and they really
faced a great deal of difficulty
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in terms of managing that aspect
of the transaction. And so what
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we know actually, from research
on M&A and divestitures is
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that when companies divest
failed acquisitions, right,
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acquisitions that they had
previously done that didn't work
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out, on average, it actually
takes them seven years, right, to
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do these divestitures, right?
And if you look at kind of the
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laundry list of failed mergers,
mergers of equals, it's
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pretty much all of them unwound
after 10 years, right? So that
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actually wasn't terribly
surprising to me. I think the
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thing that is more interesting
about this, though, is the idea
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that when the deal was
consummated, right, when the
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acquisition was consummated, the
whole thing was scale, scale,
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scale, drive costs down, you
know, create that broader
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footprint in the grocery store.
And now, as you're sort of
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saying, there's this reverse
logic of focus, focus, focus,
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right? We really need these
separated businesses to be able
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to focus on and pay attention to
their own individual growth
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rates, trajectories, consumer
taste, right? All of these kinds
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of things. So that's the reversal
that I think is very interesting, actually.
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You mentioned a lot of different
factors that were in play in
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recent years. How much, with some
of these decisions, also, is the
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pandemic still factoring in to
this, because of how these
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companies were so impacted to
the downside, and how we changed
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our lives so much in terms of
their production, in terms of
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consumers buying products, how
much money they had? There's a
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lot of different areas of
factors that probably are still
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playing a role because of the
pandemic.
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Absolutely, I would agree with
that completely. I mean, I think
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chief among these, right, is
that everyone just started
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snacking more. We're all trapped
in our houses, right? So snacks
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were the name of the game,
right? And so when you look at a
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company like Kellogg and realize
that, you know, you kind of have
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this golden goose with Pringles,
right, as kind of a key asset
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within the snacking business, and
all these other beloved brands
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of snacks that people are eating
more and more of, or were eating
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more and more of as a
result of the pandemic, you can
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sort of see, I mean exactly what
I'm saying. Kind of this
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divergence in the trajectories
of the cereal business from the
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snack business, right? And
probably similar for Kraft Heinz
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as well, I would— I would
venture. So I think that
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that's probably at play
here also.
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So is it safe to say that
the theme from from these moves
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lately is just wait, there's
probably another one coming down
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the road in a few years?
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I guarantee you, right— if you
ask me my prediction, I
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think that if you look at—
continuing with Kraft, right, if
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you look at Mondelez, we
have this delicious asset,
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full of these very, very
great and storied biscuits and
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snacks business, right, that
people love, right? So it
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wouldn't surprise me at all if
Mondelez either acquired or was
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acquired by somebody else
within the next couple of years.
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People have been talking about
PepsiCo as well, for years as
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well, in terms of separating
kind of the snacks business
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that's part of that company,
Frito Lay and all of the snacks
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from kind of the core beverages
business, right? So. And even if
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you look at this from an
external perspective, right, I
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think that there were some
activist investors, actually, that
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were even— Nelson Peltz, if I'm
not mistaken— kind of advocating
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for PepsiCo to break apart and
to merge the snacks business
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with Mondelez in which he was
also invested, right? So I think
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that there's definitely
investors and outside parties
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who recognize kind of the value
of these kinds of combinations
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and are likely to keep pushing
for them as well.
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Emilie, great to talk to you and
get your insight. Thanks very much.
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Thanks. Jim.
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Emilie
Feldman, Management Professor
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here at the Wharton School.
