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Kellogg acquiring controlling stake in Brazilian food company

Transaction is largest Kellogg acquisition in Latin America.

Kellogg Co. announced Oct. 13 that it has entered into an agreement to acquire Ritmo Investimentos — controlling shareholder of Parati S/A, Afical Ltda. and Pádua Ltda. (Parati Group), a leading Brazilian food group — for approximately $429 million. The acquisition, the company's largest in Latin America, furthers two of Kellogg's strategic priorities: becoming a global snacking powerhouse, and expanding its presence in emerging markets.

Parati Group offers a wide range of brands, including Parati, Pádua, Minueto, Zoo Cartoon and Hot Cracker biscuits, which make up approximately half of the company's business. The rest of the business is comprised of Trink powdered beverages, Parati Lamen instant noodles and Parati dried pasta. Parati Group net sales are expected to be approximately 600 million Brazilian reals (about $190 million at current exchange rates).

"With its outstanding portfolio of popular consumer brands, Parati Group is an excellent strategic fit for Kellogg and our business in Latin America," said John Bryant, Kellogg Co. chairman and chief executive officer. "Brazil is the largest economy in Latin America, and this acquisition will allow us to accelerate our growth and improve our margins in the region. This means more growth for the core Parati Group business and our well-loved Kellogg brands."

Parati Group has 3,200 employees, including a salesforce of approximately 1,300 people serving about 60,000 customers directly. This includes a strong presence in small to medium – or high-frequency – retail stores in Brazil, which are critical to reaching the country's growing population. The company also has five distribution centers and two production facilities with room for expansion.

"The combination of Parati's portfolio and sales and distribution capabilities with Kellogg's global resources – including innovation expertise, extensive shopper insights and customer marketing strength – provides tremendous opportunity. Bringing our companies together enables us to expand our footprint in a rapidly growing market," said Maria Fernanda Mejia, president of Kellogg Latin America.

Parati Group has built a very successful business over the past four decades, Mejia said, adding, "They are highly entrepreneurial and strive to provide great-tasting foods consumers love while also fulfilling their founder's legacy. We are thrilled to welcome Parati Group to the Kellogg family."

The announcement marked Kellogg's fourth emerging market acquisition in the last two years. In that time, Kellogg has acquired companies in each of its international regions, including Europe (Bisco Misr and Mass Food Group in Egypt) and the Asia Pacific (a 50% stake in Multipro in Nigeria and Ghana). The addition of Parati further enhances the company's growth strategy in emerging markets.

Financial details of transaction

The acquisition by Kellogg, through its subsidiary Pringles Serviços e Comércio de Alimentos Ltda., is subject to customary closing conditions and is expected to close in late 2016. The purchase price is 1.38 billion reals, or roughly $429 million at current exchange rates, and it will be an all-cash transaction. To preserve financial flexibility, Kellogg intends to reduce its expected share repurchases in 2016 to $450-550 million versus the previous guidance of $700-750 million.

The profitability of this business, along with expected revenue and cost synergies, should create financial value for shareowners relatively quickly, even accounting for an initially reduced level of share repurchases, Kellogg said. In 2016 and 2017, it is expected to be neutral to comparable-basis earnings per share, depending on exchange rates, with only a slight impact on reported earnings per share because of one-time costs of 1 cent per share in both years. The acquisition is expected to be accretive on both comparable and reported earnings per share in 2018 and thereafter.

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