Kellogg Co, looking abroad for growth in the face of a moribund US cereal business, agreed to buy Brazil’s Parati Group for about 1.38 billion reals (US$434 million), acquiring a maker of biscuits, pasta and powdered beverages.
The all-cash acquisition is expected to be completed late this year, Battle Creek, Michigan-based Kellogg said in a statement on Thursday.
To preserve financial flexibility in the wake of the deal, Kellogg is reducing this year’s share buyback program to a range that tops out at US$550 million, down from a previous range of as much as US$750 million.
The deal marks Kellogg’s largest purchase in Latin America and the company’s fourth acquisition in emerging markets during the past two years. The overseas expansion comes as the maker of Froot Loops and Special K is mired in a cereal slump, with many Americans turning away from the one-time breakfast favorite.
Kellogg, the largest US cereal maker, has expanded its snack business since acquiring the Pringles brand in 2012, with that unit accounting for about 50 percent of sales last year.
Parati’s products include Hot Cracker biscuits, Trink powdered beverages and Parati dried pasta.
Brazil has been going through its deepest recession on record. The real has weakened against the US dollar each of the past five years, so Kellogg is paying a lower price in US dollars than it would have previously.
Brazilian Minister of Finance Henrique Meirelles on Monday said that Brazilians will start to see the benefits of an economic recovery next year.
The addition of Parati should help Kellogg expand its business in Latin America, boosting emerging markets to about 15 percent of the company’s sales, Stifel Financial Corp analyst Chris Growe said.
Kellogg also bought a 50 percent stake in Nigerian food distributor Multipro last year for US$450 million. And it acquired Mass Food Group, Egypt’s top cereal company.
“In addition to its recent transactions in Egypt and Africa, this marks a concerted effort on the part of the company to build its emerging markets presence,” Growe said.
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