Mars and Kellanova are currently facing a second-phase merger review by the European Commission for their proposed merger. Antitrust concerns raised in the review could likely be addressed by the parties, brining the approval closer. While the statutory deadline is set for December 19, our analysis, confirmed later by some news outlets suggest the deal may be approved earlier.
The transaction isn’t complete yet, but since we entered at a good time and the share price has now moved close to Mars’s offer, we decided to close our position and reallocate the cash to our next opportunity.
REGULATORY EVENT
What’s the Deal?
The deal, valued at $36 billion, will merge Mars’ chocolate, pet food, and snack bar operations (including M&M’s, Snickers, KIND bars, and Pedigree) with Kellanova’s cereals, salty snacks, and snack bars (including Pringles, Special K, and Nutri-Grain). Mars dominates in chocolate confectionery and pet food, while Kellanova leads in cereals and salty snacks. The only potential overlap is in cereal bars, where Mars (KIND) and Kellanova (RXBAR, Special K bars) are both active, but their combined presence remains modest compared to competitors. And in case, not crucial for this merger.
Will it Clear?
It likely will. Both companies operate in the broad snacks ecosystem, but under previous EU merger precedents, “snacking products” are not treated as a single product market. Instead, the Commission consistently segments markets by product categories:
These precedents show that there is no “snacking products” market under EU antitrust analysis. Hence, the Mars-Kellanova merger will not result in market shares that would amount to a monopoly in any defined market. Will they be big and powerful? Yes, but dominant under EU competition rules? Not more or less than they are right now.
Concerns about increased bargaining power may arise since the merged entity would control a wider range of “must-have” brands across multiple categories. However, Mars and Kellanova do not directly compete in cereals, chocolate confectionery, or chips. The same competitors remain post-transaction:
- Cereals: Nestlé (General Mills), Weetabix (Post), private labels.
- Chocolate: Mondelez, Ferrero, Nestlé, Lindt.
- Salty snacks: PepsiCo, Intersnack, Orkla.
- Snack bars: Nestlé, Mondelez, General Mills.
The key concern lies in whether the merged entity could leverage its extended portfolio to bundle products or condition access to “must-have” brands, potentially forcing retailers to accept less desirable products to secure high-demand brands. This portfolio effect, not horizontal overlap, is the central competitive issue in this deal.
What’s the Status?
The US authorities have already approved the deal, recognising the limited overlaps and strong post-transaction competition. In Europe, the transaction has entered Phase II, indicating the Commission’s intention to investigate concerns around retailer bargaining power and potential portfolio effects. The Commission will likely issue detailed questionnaires to retailers, competitors, and suppliers to gather market data while giving the merging parties the opportunity to propose remedies to address concerns if needed.
What the Possible Remedies Are?
EU precedents such as Kraft-Danone (2007) suggest that structural remedies, like divestitures, are typically the most direct means to eliminate competition concerns in this sector. However, that case involved significant horizontal overlaps in biscuits and chocolate countlines, resulting in a substantial increase in market shares and retailer leverage (up to 50%-55% in certain products), which is not the case in Mars-Kellanova.
Given the absence of substantial overlaps, behavioural remedies should suffice. These could include:
- Commitments not to bundle or tie products across categories.
- Agreements to maintain individual product pricing.
- Potential price freeze commitments for a limited period.
Such remedies would address concerns about portfolio effects while allowing the merged entity to proceed without significant structural changes. As the market dynamics and competitor presence remain strong, and with no meaningful increase in concentration, this merger should ultimately receive approval in Europe without the need for divestitures, provided the companies accept behavioural conditions ensuring continued competitive neutrality in negotiations with retailers.
What if divestitures are required?
If the EU regulator requires divestitures, there are several scenarios. One possibility is requiring the sale of certain cereal bar brands where Mars and Kellanova do overlap, which would be manageable for the parties and unlikely to threaten the deal.
However, if the EU demands the divestiture of a “must-have” product like Pringles, it would fundamentally kill the transaction. Pringles generates over $3 billion in revenue annually and is on track toward $4 billion, accounting for around 25% of Kellanova’s total $12 billion revenue. Losing such a significant portion of turnover in a single divestment would likely not be justifiable (and it will strengthen a competitor). Under that request, Mars would be better off paying a $1.25 billion termination fee and call off the deal, than losing Pringles entirely.
