Digging Into the Mars-Kellanova Deal (Part III)

Valuation Insights, Fairness Opinions, and Key Lessons from the USD 36 Billion Mars-Kellanova Deal

In Part I of my analysis on the Mars-Kellanova merger, I examined dynamics of this megal-deal and traced the intense negotiation timeline, starting from Mars’ initial unsolicited proposal of USD 77 per share, through the subsequent rounds of negotiation, to the final agreed price of USD 83.50 per share. In Part II, I delved into the merger agreement itself, detailing some of the key protective provisions Mars insisted on, the regulatory hurdles facing the deal and the exit provisions of this complex transaction.

In this third and final piece, I focus on the financials, more specifically the valuation metrics and the contents of the fairness opinions of Kellanova’s two financial advisors, Goldman Sachs and Lazard Frères. We will look at their valuation methodologies, where they differed in their approach, and how they positioned the transaction for the board to make its final recommendation. We also find how much each gets paid.

Once again, the juicy bits are in the SEC filings. These documents provide a rare glimpse into the client materials of large investment banks and the parameters on which boards base their decisions. A pro-tip here is that merger-related proxy statements are an excellent resource for trading comparables, transaction comparables, and even discounted cash flow assumptions. Importantly, you have the benefit that the analysis has been most likely prepared “by hand” (i.e. not from a database) and scrutinized to a much higher degree than your average pitchbook. Granted, these are ultimately prepared by twenty-something analysts and their (sometimes) clueless MBA associates, but institutional knowledge at these firms tends to be strong and seasoned bankers can often sense when something is amiss. Judgment, analytical approach, and deal specifics may differ from one team to another, so results can vary across deals, even if the advisor is the same.

For this snacking deal, the bulk of the information is found in the proxy statement issued by Kellanova. There, we get to peek into the presentations that each of Goldman and Lazard made to the board of Kellanova on August 13, 2024, the day before the merger was announced. By then, the deal teams had been having sleepless nights for months and this was the culmination of their work. The presentations had to be perfect, the numbers had to tick and tie and, although it rarely makes a difference, the stock prices throughout the presentation had to be updated as of the previous day’s close.

What’s a Fairness Opinion anyway?

For the uninitiated, a fairness opinion is a professional evaluation, usually conducted by an investment bank or financial advisory firm, that assesses whether the financial terms of a merger or acquisition are fair, from a financial point of view, to the shareholders. The distinction of “from a financial point of view” is important in that it is not meant to address any other aspects of the transaction. It also does not say whether the deal is good or bad—just whether the price being paid is within a reasonable range based on financial analysis. The key point here is that the banks are not assigning a specific value to the company as an equity research report would with target price or an audit firm does in their typical valuation work.

While some might say that these fairness opinions are there only to justify deal terms that have already been agreed to, investment banks take fairness opinions seriously because their reputations, legal liability, and future deal flow depend on getting them right as a shareholder lawsuit or SEC request may require disclosure of the work product and open the firm to scrutiny. All that being said, it’s unlikely you will ever see a fairness opinion where the buyer is paying too much or the seller is accepting too little.

The Deal on the Table

As a reminder, Mars offered USD 83.50 for each share of Kellanova, implying a total equity valuation of USD 29.4 billion and enterprise value of USD 36.4 billion¹. The proxy statement discloses the set of internal projections provided by Kellanova:

Based on these, the implied valuation multiples are:

Price-to-Earnings (P/E) multiples were not shown in the proxy statement but would be 22.6x, 20.9x and 19.6x for 2024, 2025 and 2026, respectively.

The Football Field

While the investment banks are required to disclose the contents of their fairness opinion materials, they are also not obliged to make it easy to read or digest. Rather than simply adding a few slides, the information is spread across eighteen pages of single-spaced prose.

To make things easy, here is a summary of the valuation analysis of each of the advisors. Commonly referred to as the “Football Field” because, like a carefully marked American football gridiron, this chart lays out the entire playing field of valuation ranges—spanning from the most conservative estimates to the most aggressive hail maries down the field. And because finance bros like sports analogies.

Both opinions layout commonly used valuation methodologies like Discounted Cash Flow, Transaction Multiples and Trading Multiples, along with less “academic” ones like the Present Value of Future Stock Prices and the Present Value of Target Prices, which would make my Wharton finance professor shake his head in disappointment (sorry, Pr. Gültekin).

What you can see from the summary is that the USD 83.50 per share offered is on the high-end of the valuation ranges shown, meaning that the Kellanova shareholders are getting a fair, if not good, deal. The valuation ranges of Goldman and Lazard are reasonably similar for each methodology, except for the Transaction Multiples where Goldman’s range implies that Kellanova could be worth anywhere from USD 59 to USD 119 per share.

Discounted Cash Flow Analysis

With the projections provided by Kellanova taken at face value by both Goldman and Lazard, any variance in the results must come from the other assumptions used, which in the case of a DCF are mainly the weighted average cost of capital (“WACC”) and terminal value assumptions at the end of the forecast in 2027.

The WACCs used are similar, with Lazard’s going for a slightly tighter range. For the terminal value, Goldman used an EBITDA multiple while Lazard opted for a perpetuity growth rate of 1.5-2.0%—a range for packaged foods companies that doesn’t seem to have moved by more than 50bps in the last thirty years. Goldman also noted in the text that its EBITDA multiple range implied perpetuity growth rates ranging from 1.0% to 2.6%. With both of its key assumptions wider than Lazard’s, Goldman’s resulting DCF valuation range was as well.

Trading Multiples - to include or not include?

While the DCF provides limited “artistic freedom” in the context of a fairness opinion using the same projections, the approach for the trading multiples valuation analysis can vary more significantly. A lot of judgement—and massaging—will go into the selection of the companies and the multiples used.

In a somewhat unorthodox move, Goldman did not explicitly use trading multiples in rendering its opinion but provided reviewed and compared the valuation multiples for “illustrative purposes only.” The omission is interesting as Goldman presented trading comparables just a year earlier in its fairness opinion for another food deal, the sale of Sovos Brands to Campbell Soup.

For Kellanova, Goldman created two groups of companies: “Snacking” which included Hershey, Modelez and PepsiCo, and “Center of Store” which included Campbell Soup, Conagra, General Mills, JM Smucker and Kraft Heinz. They simply noted that the median EV / NTM EBITDA multiple for the Snacking and Center of Store groups were 14.8x and 9.9x, respectively.

Lazard went with a similar grouping, “Snacking” and “Diversified Grocery”, with just Post Holdings as an extra name. Lazard also anchored around 2025 estimates, meaning that they were slightly further out than Goldman’s “Next Twelve Months”.

“Based on its experience and professional judgment, after taking into account, among other things, such observed multiples,” Lazard applied a range of 11.0x-13.5x 2025E EBITDA and 14.0x-19.0x 2025 EPS, essentially falling in between the Snacking and Diversified Grocery medians implying that Kellanova was a mix of both.

One interesting note here for the SEC filing nerds is that Lazard did not disclose the full table as shown above in the initial proxy statement filed on September 14, 2024. It was in a subsequent filing on October 21, 2024, that Kellanova filed an amendment with this (and other) additional information from the fairness opinions “in order to moot” certain demand letters for additional disclosure “and avoid nuisance and possible expense and business delays.”

Transaction Multiples (always save these)

The third key valuation methodology will be transaction multiples. Both advisors included 11 different transactions in the food space, although only five of them overlap.

Lazard took a traditional approach of using Enterprise Value to LTM EBITDA and included both listed targets and carve-outs (e.g. Planters, Unilever Spreads business, and Reckitt’s Food Division). The median of the group is 16.7x EV / LTM EBITDA, the mean is 16.5x, the 25% percentile is 15.1x and the is 75% percentile 18.9x. “Based on its professional judgment” Lazard selected a valuation range of 15.5x to 17.5x, what looks to be one turn above and below the mean and median. Once again, Lazard had not provided the detail of each transaction in the initial proxy filing (just the mean, median and percentiles) and only added the multiple for each transaction in the subsequent filing.

For its part, Goldman once again took a slightly unorthodox approach by using a forward (“FY1”) multiple rather than the traditional trailing multiple. This would explain why only public deals are included as the forward looking data is generally not available in carveouts or private targets. In contrast to Lazard, Goldman included the multiple for each transaction in the initial filing. In the amended filing, however, they added the transaction value for each deal while Lazard did not (🤷‍♂). Goldman’s also highlights the magnitude of the transaction: the largest all-deal ever and the second largest transaction after the Kraft-Heinz merger.

Interestingly, Goldman did not include the acquisition of Sovos by Campbell Soup—a deal they advised on—in their list. The median for their set is 16.2x EV / FY1 EBITDA. While Goldman also noted that they used their professional judgment and experience, they must not have done too much thinking on this one, as they selected a range of 12.1x to 21.5x, the lowest to the highest, inferring that the company could be worth anywhere from USD 29 billion to USD 48 billion. Close enough!

An analyst spent a lot of time calculating and checking these transaction multiples. Save them for reference!

PV of Future Share Price? Don’t Tell Your Finance Prof

A common but not very academic analysis included in fairness opinions is what is commonly referred to as the “Present Value of Future Share Price” analysis presented by Goldman. What this essentially does is try to answer what shareholders could expect if Kellanova did not sell to Mars and remained a public company. This is where we get a glimpse of what Goldman believed the trading multiple for to range to be: 11.5x to 14.5x EV / NTM EBITDA. They applied this range to Kellanova’s EBITDA projections and calculated and what the theoretical share prices would be in the future. They then discounted those theoretical shares price, together with expected dividends per share, back to the present (June 30 2024 for this purpose) using Kellanova’s equity cost of capital (which they calculated as 6.9%). Their conclusion was that the shares could be worth anywhere from USD 61 to USD 90 per share (today) if Kellanova stayed independent.

Lazard did something similar. They surveyed all the published equity research analyst price targets and discounted those back one year using a cost of equity of 7.0%. The resulting range was much lower: USD 56 to 68 per share, meaning that Wall Street’s near term expectations were not particularly bullish (the ninety day volume weighted average price prior to the announcement was about USD 59).

The Fees

Goldman Sachs, Kellanova’s lead advisor on the transaction, will be paid a fee of USD 93.2 million upon completion of the merger, equivalent to 0.26% of the enterprise value. Lazard, on the other hand, who was only brought on as a second advisor in mid-July when the deal was well underway, will earn a comparably modest fee of USD 10 million. While the engagement letters were not publicly disclosed, Goldman’s fee was likely agreed as a percentage of the enterprise value while Lazard’s as a flat number (or perhaps with fixed increments).

The difference in the level of fees between the two firms highlights how critical it is to be the lead advisor on a sell-side assignment. Goldman had been a long time advisor to Kellogg, advised on the spin-off of WR Kellogg and likely spent years investing in the relationship. Goldman’s engagement letter with Kellanova was only signed in July 2024, once again highlighting the implicit trust in the relationship between the two.

The fact is that while Kellanova agreed to the fees, it’s Mars who will ultimately bear their cost when they take over the business with USD 103 million less of cash in the bank. The fee letters were made available to Mars according to documentation, but probably only after the final USD 83.50 per share offer was agreed to.

The total fees are indeed eye-watering on their own but are ultimately only a small fraction (0.35%) of the offer price. If Goldman and Lazard can show that their involvement added just 29 cents per share to the final offer, they can then argue that they paid for themselves. The law firms, meanwhile, are spared from public disclosure of their fees.

On the other side of the transaction, we do not know what Citigroup will earn as Mars’ financial advisor. JPMorgan and Citigroup will also earn significant fees from arranging the USD 29 billion package to finance the acquisition. Morgan Stanley, who had also advised on the Kellanova spin-off with Goldman, seems to be one major firm left out in the cold.

Is this a good deal for Mars?

Mars’ acquisition of Kellanova seems like a shrewd strategic move. It was a bold bet by Mars to approach Kellanova directly, get the Board’s attention with a strong opening offer and avoid a full blown auction. It helps tremendously that Mars is privately held and does not have to deal with the opinions of equity analysts and public investors.

Kellanova brings some strong brands and interesting international footprint. It’s worth noting that this deal would have happened if it were not for the separation of the Kellogg’s snacking and cereal businesses in 2023 and credit is due to the board for that value creation initiative.

Kellanova’s expected growth is still rather bland, with 3.3% revenue and 7.8% EPS 2024-2027 CAGR, so the price paid by Mars has a substantial brand and scarcity premium when adjusted for growth (2.9x EPS growth). There should be significant synergy opportunities in distribution, however, and Mars is a patient investor with a long track record of success in growth markets.

Looking Ahead: What’s Next for the Food Industry?

As of March 23, 2025, the Mars-Kellanova merger remained pending antitrust approval, although technically still on track to close within the estimated timeline of Q2 2025. While regulatory scrutiny is a given for a deal of this magnitude, the broader implications of this transaction are already rippling through the food industry.

This USD 36 billion deal is more than just a transaction—it’s a potential catalyst for further consolidation in the food sector. As consumer preferences shift toward healthier options and inflationary pressures squeeze margins, companies are increasingly seeking to access higher growth and margin categories through M&A. Bankers, of course, are eager to orchestrate the next big deal. But the question remains: will this merger set off a wave of further consolidation?

Only time will tell, but one thing is certain: the Mars-Kellanova deal will has set another benchmark for large-cap M&A valuations. For now, all eyes are on the regulators.

What’s your take? Will this deal reshape the food sector, or is it just another chapter in the ongoing story of consolidation? Did Mars snag a rare trophy asset or did they overpay? Share your thoughts in the comments below.

Next up on Mergers & Tribulations, the Nordstrom take-private: A Saga in Three Acts. Stay tuned.

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1. The proxy statement refers to adjusted of USD 6,388m, consisting of net financial debt of financial net debt of USD 5,591m, noncontrolling interest of USD 120m and factored receivables of USD 784m offset by investments in unconsolidated entities of USD 107m, all as of June 30, 2024.