Digging into the Mars-Kellanova deal (Part I)
Pro Tip: the juicy bits are in the proxy statement
The largest packaged foods deal in a decade
On a quiet Wednesday in August 2024, Mars Inc. ended a decade-long drought in big-ticket food M&A. The privately-held confectionery giant's USD 36 billion bid for Kellanova sent shockwaves through the packaged foods industry and likely had investment bankers not on the deal choking on their morning coffee as they realized they'd missed the largest transaction in the sector since Kraft-Heinz in 2015.
The numbers were enough to wake up any consumer banker: USD 83.50 per share, a 33% premium to Kellanova's 52-week high, and an eyebrow-raising 16.4x LTM EBITDA multiple.
But the real story wasn't just in the price tag – it was in how two 100+ year-old industry stalwarts had quietly orchestrated a deal that would create a USD 63 billion revenue powerhouse with 17 billion+ brands that brought family-held Mars to a virtual tie with Unilever as the second largest packaged foods company in the world behind Nestlé (USD 105 billion in revenue). The two sides even created a website for the deal.
Within about a week, however, the news cycle, research analysts and merger arbs moved on to other things as there was not much more to report on or analyze, especially as Mars was private held.
On September 11, 2024, however, Kellanova filed its preliminary proxy statement on the transaction. This is where all the juicy bits about the transaction are buried.
Let’s dig in!
Background of the Merger
One of the key disclosures required by the SEC in the proxy statement is the “Background of the Merger” section, which is designed to ensure transparency for shareholders, providing them with a clear and detailed account of the process that led to the merger decision. This is where I like to look first. The task is often left to the junior bankers to recount (as I did) the blow by blow of the transaction since its inception.
As per the proxy statement, the deal spanned about 10 weeks from the initial meeting on May 31st to the announcement date on August 14th (see Timeline of Events), or about 10 weeks - a rather “efficient” (aka “miserable,” for the deal team) - timeline for an M&A deal1.
Here’s an outsider’s view of the transaction timeline with absolutely no inside information or sources.
The Opening Gambit
In the world of M&A, timing is everything. When Poul Weihrauch, Mars' CEO, invited Kellanova's Steve Cahillane to lunch at Skadden's Chicago office on May 31, 2024, he wasn't just making a courtesy call. While the transaction timeline starts there, Mars had most likely been preparing for this transaction for months, if not since March 2023, when Kellogg Company announced it would separate its North American cereal business from its global snacking, international cereal and noodles, plant-based foods, and North American frozen breakfast business (wow, that’s a mouthful) in a tax-free spin-off, to be renamed WK Kellogg and Kellanova, respectively. The spin-off was completed in October 2023.
The choice of venue for that first meeting – Skadden's offices rather than a more “social” location – was telling. Mars came prepared, following up the lunch with a USD 77 per share, unsolicited, opening bid, complete with a priority due diligence list and indications of committed financing. This wasn't a fishing expedition; Mars was ready to move.
Just five days (and five all-nighters) later , on June 5, Kellanova held a board meeting where Goldman Sachs presented its analysis of the May Offer while its legal adviser Kirkland & Ellis provided guidance on “responding to unsolicited acquisition inquiries and potential approaches to conducting a market check” - the latter point being crucial down the line.
But if Mars thought they could rush Kellanova to the altar with a premium bid and a tight timeline, the response from the Board on June 6 was a polite but firm rejection anchored in confidence in their standalone plan.
The Dance of Due Diligence
On June 14, Citi and Goldman connected to discuss the May Offer. Goldman reiterated Kellanova’s confidence in executing its strategic plan and that the Company was not willing to provide access to private diligence materials based on the May Offer.
What followed was a sophisticated game of information management. After rejecting Mars' second bid of USD 80 per share on June 26, the Board nevertheless authorized management to provide Mars with limited due diligence information in order to enable to increase its proposal.
The progression from this point was methodical. Mars was granted access to a data room on July 6, but the real meat came in the July 22 management presentation during which the Kellanova team discussed its “financials and performance and various aspects of [its] Strategic Plan, including, among other topics, the growth drivers for Kellanova’s businesses by region, the key levers of margin expansion by region and the components of gross margin expansion….” The message was clear: there's more value here than your current bid reflects. The next day Mars sent a revised offer of USD 82 per share along with a draft of the Merger Agreement.
The key points of the Merger Agreement called out in the proxy statement include:
a voting agreement from the Gund family and the Kellogg Foundation Trust;
a reverse termination fee payable by Mars in certain circumstances;
a termination fee payable by Kellanova in certain circumstances;
a 12 month longstop date with one six-month regulatory approval extension;
a regulatory efforts covenant requiring both Kellanova and Mars to use their “reasonable best efforts” to obtain regulatory approvals subject to a “Burdensome Condition” standard which would not require Mars to divest Kellanova assets over a certain threshold; and
a non-solicit provision prohibiting Kellanova from seeking other proposals.
On July 26, the Kellanova Board discussed the latest offer and the “other potential counterparties that may be interested in pursuing a transaction” and “possibility of an interloper emerging following execution of a transaction with Mars….” The conclusion was to push for “a valuation closer to USD 85.00.”
The proxy states that when Cahillane passed the message on to Weihrauch that same day, Weinrauch responded that Mars would not provide an offer of USD 85 per share that “Mars would terminate discussions… rather than transact at the valuation.”
Nevertheless, on July 30, Weihrauch raised Mars’ bid to USD 83.50 per share, a shade below the asking price. Cahillane called back that same day to accept the offer subject to agreeing on documentation.
On August 2, Kellanova sent Mars a revised draft Merger Agreement that included a monthly ticking fee that would be payable if the transaction did not close by the end of 2024 (more on that later), a lower termination fee should Kellanova accept a superior proposal after signing the deal and specific deadlines for making regulatory filings.
The next week included a sprint of diligence calls and and site visits at Kellanova facilities in Michigan, Tennessee, Poland and England - a boon for the junior bankers sent to chaperone to collect some frequent flyer miles.
Plot Twist: the Reuters Leak
The game changed dramatically when Reuters broke the story on August 4. Whether the leak was inadvertent or shrewdly placed, it smoked out three potential interlopers.
Three interlopers are mentioned in the proxy. The CEO of “Party A” emailed Cahillane directly and express their interest to acquire Kellanova. Two other companies, “Party B” and “Party C” reached out to Goldman to express interest in buying just parts of Kellanova (if, for example, should Mars be required to divest any to assets to clear anti-trust hurdles). While it’s impossible to know who these companies were, only a few companies around the world could afford to pay more than Mars’ USD 36 billion. Best guess is Nestlé as Party A.
Citi's message to Goldman Sachs was unambiguous, however: slow down the process to talk to other bidders, and Mars walks.
The leak did solve one issue: the market check. With rumors of the deal now in the public domain and interested having raised their hands, Kellanova was absolved of having to do its own outreach and could happily check the box and proceed.
The Haggling
The end game negotiation provides a fascinating window into what each side valued most. Mars' final offer of USD 83.50 represented an 8.4% improvement from their opening bid – meaningful, but not excessive. But that’s not the end of it.
The termination fee tells its own story.
The final agreement landed on an USD 800 million termination fee from Kellanova but a USD 1.25 billion reverse termination fee from Mars. This asymmetry speaks volumes about the perceived risks and relative negotiating leverage. Mars needed to demonstrate their commitment to closing, particularly given the regulatory complexities inherent in a deal of this size in the food sector.
The regulatory risk allocation was equally nuanced. The final agreement settled on a USD 750 million revenue threshold for required divestitures – a number that appears carefully calibrated to address antitrust concerns without risking the deal's fundamental value proposition. This wasn't just about setting a number; it was about finding the sweet spot where both sides could credibly commit to seeing the transaction through.
The Ticking Fee That Wasn't
Perhaps the most interesting battle in the final days centered on the “ticking fee”. On August 2nd, Kellanova introduced the concept of a monthly fee payable by Mars in the event the transaction did not close by the end of 2024 in their first set of comments to the merger agreement. Over the next two weeks, Mars removed - and Kellanova re-inserted - the ticking fee another four times in the deal terms.
On August 12 Kellanova put some numbers on the ticking fee, asking for an additional USD 0.14 per share payable for each month elapsed after March 2025 in which the closing had not happened. While having a ticking fee in a deal with a potentially long regulatory process is not unique, it’s still pretty rare. The fee equated to an annualized interest rate of barely 2% - not even covering inflation - but Mars probably huffed and puffed that it was off-market and they there were already bearing significant costs like the financing commitments during the pre-close period.
Mars ultimately drew a hard line here, making its removal a “best and final” issue. With everything seemingly settled, Kellanova accepted its removal and instructed its lawyers to finalize the merger agreement.
While only the deal till will know, it’s quite possible that Kellanova never really expected the ticking fee to make it to the final agreement and introduced it as something to eventually trade or hold on to until other issues were settled.
The Art of the Possible
What makes this transaction particularly instructive isn't just its size. It's how two sophisticated parties navigated a complex landscape to reach their objectives: Mars had clearly did a lot of planning to launch and successfully execute such a large public deals, even under intense scrutiny.
Meanwhile, Kellanova's board played their hand with precision. They leveraged their status as a marquee brand and put forward their standalone plan to extract four price increases and a benchmark transaction multiple while maintaining a constructive dialogue. When the Reuters leak brought interlopers to the table, they used that competitive tension without letting it derail the process. Most tellingly, both sides understood where to bend and where to stand firm. Mars' willingness to accept a higher reverse termination fee balanced against Kellanova's ultimate give on the ticking fee shows how price is just the starting point of the negotiations.
In Part II, we'll look at the key commercial terms of the merger agreement itself, the contentious issue and how the two sides ultimately got to a deal.
Timeline of events
