Ferrero Buys WK Kellogg: Sweet Deal or Fully Priced?

July 10th, 2025 by Trefis Team
KLG: WK Kellogg logo
KLG
WK Kellogg

WK Kellogg Co. (NYSE: KLG) surged nearly 30% on July 10 after Italian food giant Ferrero announced a $3.1 billion acquisition, including debt. The all-cash deal values WK Kellogg at $23 per share, an almost 40% premium to the 30-day volume-weighted average trading price, and is expected to close in the second half of 2025, pending regulatory approvals. Ferrero, best known for brands like Nutella, Ferrero Rocher, Kinder, and Tic Tac, is expanding its U.S. footprint with this move, adding iconic cereal brands such as Frosted Flakes and Froot Loops to its growing packaged food empire.

With shares now trading near the offer price, the key question is whether there’s any value left on the table, or if the buyout buzz has already capped further gains. For investors who seek lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception. Separately, see Down 30%, What’s Next For BG’s Stock?

From Stagnant Spin-Off to Takeover Target

Spun off from Kellanova in October 2023, WK Kellogg entered the market with a portfolio of well-known cereals but lacked growth momentum. Sales have declined at an average annual rate of 3.1% over the past three years, including a 6.2% year-over-year drop to $663 million in the most recent quarter. Margins remain slim, with a 5.6% operating margin over the last four quarters and a 2.1% net margin, reflecting weak pricing power in a mature product category.

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Still, the brand equity was undeniable. For Ferrero, which has previously acquired Nestlé’s U.S. candy business, Fox’s Biscuits, and Wells Enterprises, adding a U.S. breakfast mainstay aligns with a broader strategy to diversify beyond confectionery. The acquisition plants a flag in the $20B U.S. cereal market and positions Ferrero for further cross-category growth.

Undervalued No More?

Before the deal, WK Kellogg’s market cap hovered around $1.5 billion, making Ferrero’s offer a near 100% premium. On a relative basis, KLG was cheap: trading at just 0.6x sales and 26.7x earnings, both below historical levels and reflecting skepticism about growth. Now, with shares near $23, the implied P/E ratio has risen into the mid-30s, suggesting limited room for further rerating.

A Smarter Way to Play the Market?

While a single-stock bet on KLG may no longer offer meaningful upside, broader exposure to quality businesses can still deliver. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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