KELLOG ACQUIRED PRINGLES

Presented byNIKHIL GROVER

140701048

About Kellogg Company

• Kellogg Company (also Kellogg's, Kellogg, and Kellogg's of Battle Creek) is an American multinational food manufacturing company headquartered in Battle Creek, Michigan, United States.• Kellogg's was founded as the Battle Creek Toasted Corn Flake

Company on February 19, 1906, by Will Keith Kellogg.• Kellogg Company is the world's leading producer of cereal, frozen

foods.• Second largest producer of cookies and crackers.

• Kellogg's largest factory is at Trafford Park in Manchester United Kingdom, which is also the location of its European headquarters.• well-loved brands - produced in 18 countries and marketed in more

than 180 countries these brands include Cheez-It®, Coco Pops®, Corn Flakes®, Eggo®, Frosted Flakes®, Kashi®, Keebler®, Kellogg's®, Mini-Wheats®, Pop-Tarts®, Pringles®, Rice Krispies®, Special K®, and many more.• and - through the May 2012 acquisition of the iconic Pringles business

- the world's second largest savory snacks company.

About Pringles• Pringles is the world's second largest player in savory snacks, spread across more than

140 countries.• The snack was originally developed by Procter & Gamble (P&G), who first sold the

product in 1967. P&G sold the brand to Kellogg's in 2012. • Easily identified by its unique saddle shape and distinct packaging, and with more than

80 flavors.• Snack lovers worldwide have made Pringles a snack aisle favorite for more than four

decades.• "The Pringles team embodies the same values and passion for growth that have driven

the people of Kellogg for more than a century,• The cereal company's $2.7 billion deal with Procter & Gamble Co. to buy Pringles

potato crisps aims to satisfy a hunger for more diversification and instantly makes it a player in overseas snacking.

Acquisition

• Kellogg bought Pringles chip brand from Procter & Gamble for $2.7 billion in may 31, 2012, • Iconic ~$1.5 billion brand –is now second largest at Kellogg• Highly incremental to US and international businesses• Potentially expands the reach of Kellogg brands-Savory-snack category

growing in both developed and emerging markets• Game changer internationally• Provides entry into warehouse-distributed snack category• World-class manufacturing capability

• Provides new innovation platform –flavors, packaging, forms• Financially attractive• Iconic global snack brand• #2 in savory snacks globally• Distribution in 140 countries• Platform for future innovation• Strong in-store positioning• World-class manufacturing and supply chain

Strengths• Leading market position built on strong brands aided with robust

advertising• Strong market innovation creates sustainable growth

• Strong results in tough economic and macro environment enhances investor confidence

Weaknesses

• Lack of scale compared to peers• Dependence on few customers for major portion of revenues• Product recalls hampering brand image

Opportunities

• Emerging markets providing ladder for growth• Growing organic foods market

• Strategic agreements and acquisitions

Threats

•Stringent regulations

•Soft consumer spending in mature markets of the United States and Europe

•Intense competition and changing global retail scenario

• It also closes a chapter at consumer goods business Procter & Gamble which has been trying to find a buyer for Pringles, its only remaining food business, for several years• to leave them better able to focus on their core non-food brands, like

Ariel, Pantene and Gillette. • They were seeing a continued squeeze on prices for suppliers – from

cash conscious consumers and retailers under pressure to make margins – and many of them are selling off brands to focus on best-selling lines

P & G was looking for it

Financial• Acquisition for $2.695 billion in cash• Attractive Price:adjusted for tax benefits and working capital• Kellogg borrowed $2 billion to complete the deal and expected to limit its

share repurchase program for about two years.• Excluding one-time costs and the impact of reduced buybacks, the deal

added 8 to 10 cents per share to Kellogg's earnings in 2012• Transaction funded with cash on hand and committed financing-Maintain

strong investment-grade rating• Good use of international cash, low rates of financing• Total one-time costs are expected to be between $160 -180 million.

• Identified on-going synergies of $50 – 75 million.• Dilutive To EPS By $0.11-0.16 In 2012 Including one-time Costs And

Changes To share-repurchase Program Slightly Accretive To EPS In 2013 Including one-time Costs And Changes To Share Repurchase program.• The acquisition, which first was announced on April 5, subject to

regulatory approval by competition authorities in various jurisdictions outside the United States.

Kellogg Acquired Pringles Business with Supply Chain Synergy Opportunities

• Pringles dominant presence lies among mass merchandising (48 percent), grocery (25 percent) and convenience (12 percent). • Kellogg on the other hand has a current high presence in grocery with

some mass merchandising, but lacks any substantial global presence. Pringles immediately added such presence, bringing along a world class manufacturing and supply chain capabilities, including production presence in the U.S. Europe and Asia, and a distribution presence among 140 countries

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