Kellogg-Worthington Merger

24 Pages Posted: 21 Oct 2008

See all articles by L. J. Bourgeois

L. J. Bourgeois

University of Virginia - Darden School of Business

Margaret Cording

University of Virginia - Darden School of Business

Luis Franco

affiliation not provided to SSRN

Abstract

The ready-to-eat cereal industry had been flat for five years, and Kellogg's share had been shrinking. Now it had acquired Worthington and a new management team was in place. A new vice president must figure out how to integrate the new company. The case is appropriate for use in a series on post-merger integration, as the students must craft an integration plan de novo. It can be followed by the "Note on Acceleration Transition" (UVA-BP-0427) and "Albany-Geschmay Merger" (UVA-BP-0428) to illustrate the application of PWC's integration methodology.

Excerpt

UVA-BP-0426

KELLOGG-WORTHINGTON MERGER

Looking over downtown Battle Creek from his office at Kellogg's headquarters, John D. Cook was anticipating the direction that his next steps would take his company. Cook had been in his position as executive vice president of the Kellogg Company and president of Kellogg North America for only nine months. Yet this was a point that could begin a transformation at Kellogg. Tomorrow, October 1, 1999, Kellogg was announcing its acquisition of Worthington Foods, Inc., a vegetarian and health-food manufacturer based outside Columbus, Ohio.

Cook had known what he was getting into when he accepted the offer to leave McKinsey & Company and join Kellogg. He knew and understood the pressures facing food manufacturers. After all, as the leader of McKinsey's Midwest Consumer Goods Practice, he had helped a number of companies understand, adapt to, and profit from the same trends Kellogg was facing. Yet he knew that this coming challenge was going to be formidable.

Kellogg was the recognized King of Breakfast. Yet its dominance in the breakfast market was eroding, and most of its recent strategic initiatives had been unable to stem the tide. The company's share of the cereal market was shrinking; its previous acquisition, Lender's Bagel, was a $ 180 million disaster; and the company's highly anticipated Ensemble foods line was being removed from shelves at this very moment. The company needed to pursue a direction that would both halt the company's struggling performance and accelerate its growth. Cook thought he had found it. Worthington Foods could be a first step: it seemed to be a perfect fit, with its nutritious products, common distribution, and presence in a growing, albeit niche market.

Cook was the primary advocate for acquiring Worthington. Kellogg was paying an estimated $ 307 million in cash for Worthington, which was 15 times Worthington's operating income. Accordingly, the company would recognize close to $ 200 million in goodwill, a hefty premium.

. . .

Keywords: Mergers and acquisitions, corporate strategy, industry analysis

Suggested Citation

Bourgeois, L. Jay and Cording, Margaret and Franco, Luis, Kellogg-Worthington Merger. Darden Case No. UVA-BP-0426, Available at SSRN: https://ssrn.com/abstract=907921 or http://dx.doi.org/10.2139/ssrn.907921

L. Jay Bourgeois (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924 -4833 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/bourgeois.htm

Margaret Cording

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Luis Franco

affiliation not provided to SSRN

No Address Available

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