The move – which will end a century of competition in the cereal aisle, where MOM also sells branded and private label cereals, as well as hot wheat and oatmeal – has already been given the green light by MOM shareholders, and both firms expect to close the transaction in Q3 2015 subject to normal closing conditions.
Post said today that buying MOM (brands include Golden Puffs, Malt-O Meal and Mom’s Best Cereals) would help solidify the former’s position as the third-largest supplier of ready to eat (RTE) cereal in the States, with a combined dollar share of approximately 18% (Nielsen, 52 weeks ending December 27 2014).
End of a century...of 'spirited rivalry'
“After a century of spirited rivalry between MOM Brands and Post, we now look forward to combining our strengths,” Vitale said.
In an investor presentation that followed this morning’s announcement, Vitale described MOM as a “best-in-class value cereal company” that would increase Post’s scale and market position in this category.
Although Kellogg’s and General Mills won’t be shaking in their boots at today’s announcement, they’ll certainly sit up and take notice, in a category where overall RTE cereal sales fell 1.5% (Nielsen xAOC) in the US from 2010-14.
The value segment has grown 0.2% over the same period, driven by a strong CAGR of 5.6% for bagged RTE cereal over the same timeframe.
Before today, Post had an 11% dollar share of the $8.8bn RTE cereal market, with MOM Brands on 7%; although Kellogg’s/Kashi leads with 32% and General Mills has 31%, Post/MOM together will hold 16 of the Top 50 brands in the category, versus Kellogg’s’ 15 and General Mills’ 14.
The transaction will see Post acquire MOM for $1.15bn – paying $1.05bn in cash and making up the balance by issuing the current owners of MOM Brands with approximately 2.45m share of Post common stock.
REACTION FROM MOM BRANDS: “By joining forces with Post, we will have more resources available to innovate, extend our brands and expand distribution. We believe that this new, combined enterprise will be uniquely positioned to help our customers find new solutions in the highly competitive cereal category. In addition, it will give us the opportunity to pursue our mission of saving families money on an even greater scale.” (Chris Neugent, CEO and chair, MOM Brands)
New Post recruit Richard Koulouris will lead the combined cereal firm, while current MOM Brands CEO and chair Chris Neugent will continue to lead that business as president but report to Koulouris.
WILL THIS DEAL SHAKE UP US CEREAL? ANALYST INSIGHT: VIRGINIA LEE, SENIOR ANALYST, EUROMONITOR INTERNATIONAL
"Post Holdings, Inc’s decision to acquire MOM Brands Company is unlikely to shake up the US cereal segment. Americans have been turning away from breakfast cereals for the past few years as they turn to other breakfast alternatives that are more convenient. Consumers are turning to more convenient products such as Greek yoghurt and energy bars that also offer more protein than cereal. Americans are also turning to foodservice outlets for breakfast. Concerns about the sugar content of cereal and the growing gluten-free trend have also hurt the breakfast cereal segment. These obstacles to growth are likely to continue into the future.
"That said, the acquisition will create efficiencies. Post Holdings management stated in their February 26 investor call that they expect to get run-rate synergies of about $50m by the third full fiscal fiscal year post closing. Combining the two cereal businesses will allow Post to reduce costs through reducing suppliers, closing plants, and reducing distribution costs.
"Buying MOM Brands who has a dominant presence in the bagged cereal business will allow Post to expand in the value cereal segment. By playing in the value segment, Post can target lower-income and middle-income consumers who will continue to purchase breakfast cereal while higher-income consumers have the financial ability to go on expensive diets such as the Paleo, gluten-free, and juicing. MOM Brands’ strength in the growing hot cereals segment will help the business."
Post Holdings predicts $50 in annual cost synergies
Jim Holbrook, president and CEO of Post’s Consumer Brands Group will stay in that role to manage its Premier Nutrition, Dymatize and PowerBar businesses; Tony Shurman, current general manager of Post Foods, will continue in that position.
Post believes the tie-up will allow the new conglomerate to realize around $50m in cost synergies by the third fiscal year following the closing of the transaction – due to “infrastructure rationalization, shared administrative services and improved leverage within the combined sales force”.
These changes will cost Post an estimated $70-80m, but the company also expects the deal to net it approximately $200m via a tax benefit.
Today, Post reported Q1 2015 net sales of approximately $1.074bn, with adjusted EBITDA of $126-128m – the latter ahead of previous guidance; MOM reported estimated net sales of $760m for FY 2014.