Shares in snacks and cereals firm Kellanova (K) were less tasty today as the European Commission confirmed it was launching an in-depth anti-trust probe into its $36 billion takeover by Mars.
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Higher Prices
The prospect of Mars, the maker of Snickers and M&Ms, snapping up the maker of Pringles, Eggo and Rice Krispies was hit as the Commission said that the deal could lead to higher prices for consumers due to Mars’ increased negotiating power towards retailers in Europe.
Its preliminary investigation found that adding Kellanova’s brands would increase Mars’ bargaining power with retailers.
“As a result, Mars could be in a position to use this increased leverage to, for example, extract higher prices during negotiations, which in turn would lead to higher prices for consumers,” warned the EC.
It added that several retailers across Europe have also raised concerns about Mars’ increased bargaining power. As a result, retailers said they would be forced to accept higher prices to ensure that these popular products remained on their shelves.
Optimism Remains
“By acquiring Kellanova, Mars will add several very popular brands of potato chips and cereals to its already broad and strong product portfolio,” EU competition chief Teresa Ribera said. “As inflation-hit food prices remain high across Europe, it is essential to ensure that this acquisition does not further drive up the cost of shopping baskets.”
Indeed, higher prices for customers would come at a particularly difficult time given the rise in the cost of living and general economic uncertainty.
The Commission set an investigation deadline of October 31.
Mars, which announced the deal last August, hoped the deal would add to its brand strength and meet demand in fast-growing markets such as Africa and Latin America.
Kellanova said it remained optimistic that this investigation will be positively resolved and expects the deal to close towards the end of this year.
Is K a Good Stock to Buy Now?
On TipRanks, K has a Hold consensus based on 8 Hold ratings. Its highest price target is $83.50. K stock’s consensus price target is $83.38 implying a 6.88% upside.
