Kraft Foods is peddling its portfolio of Post cereal brands, including Alpha Bits, Grape Nuts, and Honey Bunches of Oats to St. Louis-based Ralcorp Holdings in an all-stock deal valued at $2.6 billion, including debt. The move will make Ralcorp, already a powerhouse in private label, the country's third-largest cereal maker behind Kellogg and General Mills.
Ralcorp said the purchase increases its 2007 sales by 50% to $3.3 billion from its current $2.2 billion. Post will now account for nearly a third -- 32% -- of Ralcorp sales.
14.6% market share
Post, founded by C.W. Post in 1895, currently holds a 14.6% share of the ready-to-eat cereal market. Ralcorp dominates the private-label market, which accounts for 9.5% of the category, the company said.
But where the two companies diverge is advertising. Although its cereal spending has been down greatly from decades past, Kraft still spent $19.7 million on measured media for Post cereals in 2006 and $9 million in the first six months of 2007. Ralcorp, by contrast, spent only $70,000 advertising its food brands in 2006, and $54,000 in the first half of 2007.
Ogilvy, New York, has handled the Post account for Kraft. The name of Ralcorp's agency wasn't immediately available.
In a statement announcing the sale, Ralcorp indicated that despite its history, it may not turn off the advertising spigot for the Post brands. "Ralcorp is committed to achieving long-term growth and success with Post," President and co-CEO David P. Skarie said in a statement. "We are confident that with Ralcorp's resources and support, our team will help this important branded business excel in the marketplace."
Yet the statement was heavy on sales-distribution talk and light on ad specifics. Mr. Skarie said that Post's "existing marketing and sales-support team" will continue to work on the brands, and the company said that Ralcorp's "Post-branded business will have a sales and marketing team separate and distinct from the private-label cereals business."
'Ever eat a pine tree?'
Post has a storied advertising history including the much-parodied Euell Gibbons campaign for Grape Nuts in the 1970s ("Ever eat a pine tree?") and animated commercials featuring the Flintstones for Pebbles. There were also vintage ads for Shredded Wheat and, for Post Raisin Bran, spots that hyped the fact that its raisins were not sugared like Kellogg's. It's more classic tagline today is "It's a mouthful of joy" for its $300 million Honey Bunches of Oats brand.
Despite the marketing, Kraft has struggled in the cereal aisle for years. While well known, its brands have been surpassed in popularity by some Kellogg, General Mills, and some Quaker Oats brands. Faced with the pressure of high commodity costs and activist investors, including Nelson Peltz, demanding divestitures, Kraft began shopping for a cereal buyer last summer.
In the statement, Mr. Skarie said that Ralcorp "has substantial experience integrating acquisitions, having made 20 acquisitions in the past 10 years which increased annual sales by over $1 billion." He added that "we plan to utilize this same experience to facilitate the successful integration of Post."