Post Holdings Inc. (POST) entered into a $1.15 billion agreement to acquire for privately-owned MOM Brands Company, sending its share up by 18% on Jan 26, 2015.
MOM Brands — a 95-year old cereal company — offers a broad portfolio of ready-to-eat (RTE) cereals, private labels, and hot wheat and oatmeal products. The takeover will boost Post’s presence in the cereal category. As per market research firm Nielsen, the takeover will also help Post become the third largest player in the RTE cereal category.
Post expects the takeover to be accretive to margins and free cash flow immediately. Moreover, the company expects to accrue $50 million in run rate cost synergies by the closure of the deal.
Post Holdings expects to close the deal by the fourth quarter of fiscal 2015 subject to customary closing conditions. The company intends to pay $1.05 billion in cash and the rest by issuing approximately 2.45 million common stocks to MOM Brands shareholders.
After the takeover is completed, MOM Brands will become part of Post's Consumer Brands Group, and the combined business will be managed by Richard R. Koulouris, who is expected to join the company on Feb 9. Koulouris has 35 years’ experience in consumer products sector and will help in the integration post takeover. Chris Neugent, current Chairman and Chief Executive Officer of MOM Brands, will lead the MOM Brands business as President and report to Koulouris.
This deal comes at a time when major cereal companies like Con Agra Foods Inc. (CAG), General Mills Inc. (GIS) and Kellogg Company (K) are struggling to adapt to the changing eating habits of American consumers. Lower demand for cereals due to competitive pressures from alternatives including yogurt, eggs, bread and peanut butter are hurting cereal category growth and thereby revenues of these companies.
At the conference call for the takeover, the Zacks Rank #3 (Hold) stock also announced the preliminary results for the first quarter of fiscal 2015. While preliminary net sales were $1.1 million, earnings before income tax, depreciation and amortization were reported to be $128 million.
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