Notable Mergers and Acquisitions of the Day 02/15: [(K)/(PG) (KONG)]

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K Hot Sheet

Overall Analyst Rating:
NEUTRAL (= Flat)

Dividend Yield: 3.4%
EPS Growth %: 0.0%

Kellogg Company (NYSE: K) today announced that it has entered into an agreement to acquire Procter & Gamble's (NYSE: PG) Pringles business for $2.695 billion. Pringles is an excellent strategic fit for Kellogg Company. It significantly advances the company's goal of building a global snacks business on par with its global cereal business.

Kellogg has established a strong U.S.-based snacks business since its successful acquisition of Keebler more than a decade ago. With the acquisition of Pringles, the company will build a truly global snacks platform and organization for further growth.

As a result, Kellogg anticipates increasing its outstanding debt by approximately $2 billion, and expects to limit its share repurchase program to proceeds received by the company from employee option exercises for approximately two years to allow the company to reduce the increased levels of debt.

Kellogg Company's financial performance in 2012 will depend on several factors, including the exact date of closing. However, assuming the transaction closes on or around June 30, 2012, Kellogg expects that the transaction will: Be accretive to earnings in 2012 by between $0.08 and $0.10 per share before the impact of transaction and one-time costs and changes to the share repurchase program; including these items, the transaction will be dilutive to earnings per share in 2012 by between $0.11 and $0.16 per share, Generate one-time costs of between $160 million and $180 million. The company expects that between $70 million and $90 million of these costs will be recognized in 2012, a lesser amount in 2013, and the remainder in 2014, Generate synergies of at least $10 million in 2012, more in 2013 and ongoing synergies of between $50 million and $75 million a year thereafter.
KongZhong Corporation (Nasdaq: KONG), announced it has entered into definitive agreements to acquire 100% of the equity interest in Noumena Innovations (BVI) Ltd. and certain assets from a related party of Noumena for a total consideration of US$15.0 million in cash, which is payable over three years from the closing of the transactions, and 40.0 million of the Company's ordinary shares, which are subject to a three-year lock-up period. The board of directors of the Company has approved the transactions, and the transactions are expected to close in the first quarter of 2012.

The Company intends to integrate the Noumena team into its existing mobile game development team (of more than 100 employees) in order to create new smartphone mobile games that will take advantage of the Handymo game engine technologies. The Company believes this new generation of smartphone mobile games will enable it to leverage its existing mobile game distribution channels in China and capture market share in the nascent PRC smartphone mobile games market, separate from the Company's existing featurephone mobile game business. Moreover, the Company believes these new games will also enable it to expand its market presence in the overseas smartphone mobile games market with a focus on the "freemium" mobile games sector of the market.