The European Commission announced the initiation of a Phase II review regarding Mars’ proposed acquisition of Kellanova.
This development suggests that regulators see a ‘real risk’ of this merger significantly diminishing competition across essential categories such as savoury snacks, breakfast foods, and frozen ready-to-eat meals.
From the start, the $36 billion merger between Mars and Kellanova seemed like an ideal pairing for the snacking sector. Brands like Pringles, Pop-Tarts, Cheez-It, and Eggo would merge with M&M’s, Snickers, and Skittles, potentially yielding the world’s most formidable snacking conglomerate. However, as the EU engages in a deeper investigation, it becomes apparent that Mars might not achieve the global snacking dominance it envisioned.
The immediate concern? The possibility that Mars may have to divest parts of either its or Kellanova’s snack portfolio to satisfy regulatory requirements.
Potential divestiture targets may include Pringles in Europe, segments of the Eggo or Cheez-It brands, or overlapping snack bar stock-keeping units (SKUs). If these assets pose competitive overlap, they could jeopardize the deal unless Mars is prepared to relinquish them.
Phase II reviews are infrequent and signal serious implications. They indicate that the preliminary Phase I review—traditionally conducted over 25 working days—revealed complexities that small adjustments cannot resolve. A Phase II entails a more extensive 90-working-day analysis, involving consultations with competitors and potential structural remedies.
Why is the EU concerned?
Firstly, the issue of portfolio dominance arises. Mars already leads in global confectionery and pet food markets. Integrating Kellanova’s well-known snack brands would provide immense leverage over retailers, allowing for cross-category bundling that could disadvantage smaller competitors.
Secondly, retailer pushback is a significant factor. Although the Commission hasn’t specified which grocers raised concerns, many large European supermarket groups voiced objections during the Phase I review, claiming that the merger could limit product diversity and lead to increased prices.
Thirdly, Mars did not proactively present remedies by the EU’s 18 June deadline. This oversight, whether viewed as a calculated risk or misplaced confidence, left the Commission with no option but to intensify the review process.
Timing poses additional challenges. The initial merger agreement, signed in August 2024, aimed for completion by mid-2025. According to the deal’s stipulations, both parties must obtain US and EU approval by August 13, 2025. Failing that, either entity can withdraw unless both agree to an extension, potentially leaving unresolved issues as they enter the fall with rising legal costs and impatience from investors.
One major concern is that any obligated divestitures could undermine the fundamental rationale of the deal. If Mars must offload Pringles or crucial snack assets in Europe, it would diminish the scale and synergies the merger sought to achieve. Consequently, this complication would obscure global brand alignment and introduce operational difficulties.
Additionally, financial repercussions loom large. Mars has raised around $26 billion via new bond issuances and secured a $29 billion bridge loan to facilitate the acquisition, marking it as one of the largest debt-funded transactions in consumer goods history. Credit rating agency S&P has already downgraded Mars’ outlook due to concerns about the debt burden. Prolonging the deal could exacerbate these worries.
Moreover, reputational damage is set to follow in the event of a merger failure. For Mars, withdrawing from the largest snack deal in decades would likely be perceived as a significant strategic blunder. For Kellanova, which spun off from Kellogg’s in 2023 to pursue growth independently in snacking, this could cast doubt on its long-term viability as a standalone company. If Mars steps back, would another suitor emerge?
Don’t count the deal out yet
Nonetheless, industry experts advise against dismissing the merger prematurely, and with good reason.
Mars has a proven track record of successfully completing large-scale acquisitions—such as its 2008 purchase of Wrigley—and may be prepared to divest specific snack brands to finalize this deal.
Moreover, the US Federal Trade Commission has yet to express any objections, indicating that regulatory resistance may be confined to Europe.
The broader context of the food industry is crucial too. With profit margins under strain, the rise of private label alternatives, and inflation altering household budgets, scale becomes increasingly critical. Thus, consolidation forms a key element of current trends in the food and beverage industry.
Additionally, precedents exist. When Mondelez acquired Clif Bar in 2022, and when Nestlé restructured its ice cream operations in 2019, both companies successfully navigated targeted divestitures to achieve regulatory approval.
Should this deal collapse, the repercussions could be extensive. The momentum for consolidation may slow, particularly among multi-category food manufacturers. Mid-size brands could become prime M&A targets as companies pivot toward lower-risk acquisitions. Moreover, regulators—emboldened by blocking a high-profile deal—might adopt a tougher stance on future mergers.
Is the Mars-Kellanova merger at risk of falling apart?
Yes, but this isn’t certain. The EU’s Phase II investigation has undoubtedly heightened the stakes. However, if Mars offers substantial concessions before summer’s end, the deal may still be finalized successfully.
If not, the world’s largest snack coalition might end up sitting on the shelf.