The merger and acquisition churn involving consumer product goods producers continues, and with that CPG supply chains must continue to adapt to such changes. Today’s announcement from Post Holdings is yet another example of the constantly changing challenges for CPG focused supply chains having to adapt to both rapidly changing end-market as well as internal industry forces.
Today, Post Holdings, a self-termed a consumer packaged goods holding company operating in the center-of-the-store, active nutrition, refrigerated and private label food categories, announced that it had agreed to acquire privately-held MOM Brands Company for a reported $1.15 billion. This deal brings together both the No. 3 and No. 4 players in cereal based on dollar sales value. Together, they are expected to have an 18 percent share of the U.S. cold cereal market measured by revenue. Post currently has an 11 percent share.
Under the terms of this announcement, St. Louis Missouri based Post will pay MOM $1.05 billion in cash and issue MOM stockholders 2.45 million shares of Post stock. The deal is expected to close by the third quarter.
According to the announcement, MOM Brands is noted as a leader in the ready-to-eat (“RTE”) cereal value segment, with over 95 years of experience in providing high quality RTE and hot cereal products, strategically targeting the value segment in branded RTE cereal, private label, and hot wheat and oatmeal. Various business reports indicate this deal will provide Post a presence in the growing bagged cereal and hot cereal businesses, two of MOM Brands’ strongholds. MOM Brands now joins Post’s other brands of Honey Bunches of Oats®, Grape-Nuts Cereal®, PowerBar® Raisin Bran Cereal®, and a larger variety of other brands.
The acquisition announcement was timed with Post’s better-than-expected financial outlook issued for its December-ending quarter.
Supply Chain Matters has highlighted today’s announcement since the history of Post Holdings provides a pertinent example on the continuous changing state of CPG focused supply chains.
The Company’s web site provides an historic capsule upon which we have extracted important milestones:
“Post is over 115-year old with (to borrow a phrase) “a new birth of freedom1.” Post traces its heritage to C. W. Post who introduced Grape-Nuts®, the first natural ready-to-eat cereal marketed to enhance health and vitality, in 1897. Our history serves as a reflection of strategy, marketing, finance and governance during much of the 20th century. C. W. Post invented a cereal and a drink at a time when brands were beginning to resonate with the American consumer. His son-in-law, E. F. Hutton, saw the value of bringing together several brands under one corporate owner and General Foods Corporation was born.”
“General Foods was acquired by Philip Morris in 1985. Subsequently, Philip Morris purchased Kraft and merged it with General Foods…..Kraft sold Post to private-label manufacturer Ralcorp. Post was spun off into a separate, independent company on February 3, 2012.”
Ralcorp itself was acquired by ConAgra Foods in January 2013.
Since its spinoff as an independent company, Post has been an active acquirer of small and larger producers. Acquisitions have included peanut butter producers American Blanching Co. and Golden Bay Foods, eggs and diary producer Michael Foods, snack foods producers PowerBar and Musashi Brands. The Michael Foods acquisition was reported to have exceeded $2.4 billion.
A published report from the Minneapolis Star Tribune reports that the 95-year-old MOM Brands has grown steadily over the past 15 years, particularly capturing share in the low-price or “value” segment of the cold cereal business. That report indicates that MOM will continue to operate as a separate business under Post.
As is often the case in CPG deals, the Post acquisition comes with the usual expectations of added cost synergies, specifically $50 million in run-rate savings by the third year, including sharing of administrative services, infrastructure, sales and marketing. The Star report points out that MOM Brands employs 251 at its Lakeville corporate office and that some jobs there might be in jeopardy, as they often are in post-buyout cost cuts. We would not be all surprised if cost synergies are further applied to supply chain related input costs, functions and services. Such acquisitions often burden the acquirer with added debt or stock dividend expectations which, in-turn, fuel the need for additional cost savings.
While Post continues with its acquisitions spree, the top two producers in this cereal category, namely General Mills and Kellogg have each declared multi-year cost cutting or capacity consolidation initiatives. Supply Chain Matters has provided a focused commentaries on General Mills, the latest being September of last year. In early January, this producer announced the closure of two of its Pillsbury dough factories, adding to the elimination of another 500 jobs over the more than 1000 job cuts announced last year. In 2013, Kellogg announced a billion dollar Project K cost-savings plan that would extend over four years shedding an estimated 2000 supply chain jobs.
CPG supply chains do indeed have their own unique set of challenges. Producers riding the wave of consumer changing tastes and demands for healthier products must continue to innovate or grow or be consumed themselves by producers needing to fuel market growth expectations.
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