Kellogg is in advanced talks to acquire snack-maker Diamond Foods for about $1bn (£ 653m, € 908m). If it goes through, the deal would allow the Michigan-based cereal maker to expand its portfolio which currently includes brands such as Frosted Flakes, Froot Loops and Rice Krispies. The acquisition will see it adding Diamond's brands such as Kettle potato chips, Emerald nuts and Pop Secret popcorn.
Diamond Foods whose annual sales from its snacks division was up 10% has debt equal to five times its EBITDA. It had put itself on the block recently and was ready not only to receive takeover bids for the entire company but even for parts of its businesses.
It had tried to sell itself to its larger peer Modelez in late summer this year but the deal was unsuccessful. Kellogg, which is currently trying to inorganically grow its business to emerge as a company with more food offerings other than just breakfast cereals, seems to be the most aggressive suitor for Diamond. It could also be the only potential bidder offering less than $40 per share.
Hedge Fund Oaktree Capital which owns a 14% stake in Diamond is also finding it difficult to exit the company.
Kellogg's acquisition of Pringles from Procter & Gamble in 2012 shows its appetite for this category. It was also earlier reported that Kellogg had hired an adviser to examine a bid for British cookies and snacks maker United Biscuits.
Breakfast foods now constitute a little more than 20% of Kellogg's net sales, but snacks constitute a slightly larger category. According to data collector IRI, US cold cereals sales for the four weeks ending 4 October were flat compared to the same period last year but the cereal sales were down 4% compared to 2013.