Well so much for my Kellogg's...Here's news:
S&P cuts Kellogg senior unsecured debt rtg to BBB
(Press release provided by Standard & Poor's)
NEW YORK, Dec 29 - Standard & Poor's today lowered its
ratings on Kellogg Co., as listed below.
All ratings are removed from CreditWatch, where they were
placed with negative implications on Oct. 27, 2000.
The outlook is stable.
About $2.2 billion of total debt was outstanding as of
Sept. 30, 2000.
The rating action follows the announcement that Kellogg has
reached an agreement to acquire Keebler Foods Co. in a
transaction entered into with Keebler and Flowers Industries
Inc., the majority shareholder of Keebler. The purchase price
is $42 per share, or about $3.6 billion, plus assumed debt.
Total debt at Keebler was about $597 million at Oct. 7, 2000.
The acquisition of Keebler by Kellogg will enhance
Kellogg's business profile by diversifying the company's
product portfolio and increasing the company's presence in the
faster-growing convenience food segment.
The combination will also form the ninth largest packaged
food company in North America, increasing the company's
importance to retailers in the U.S. Kellogg plans to move its
convenience food business from a warehouse distribution system
to Keebler's direct store delivery system.
This should result in broader distribution for Kellogg's
products, improve in-store merchandising, and increase product
freshness.
These positive factors are partially offset by the fact
that Kellogg has faced a very challenging operating environment
in its core U.S. cereal business in recent years.
In 2000, the company has focused on issues including more
stringent resource allocation and more effective advertising;
this is expected to result in improved profitability and a
modest increase in market share for fiscal 2000.
Kellogg will be challenged to integrate the Keebler
acquisition quickly, while continuing to focus on improving the
performance of its U.S. cereal business.
In addition, the acquisition represents a more aggressive
use of debt by Kellogg and will pressure the company's
financial profile.
Standard & Poor's expects Kellogg to use its substantial
cash flow primarily for debt reduction. The rating does not
include flexibility for material acquisitions or share
repurchases.
Overall, Kellogg's ratings reflect the company's strong
market position in the highly competitive global cereal
industry and the company's resulting solid financial profile.
Kellogg is the world's leading producer of ready-to-eat
cereals.
The company also holds leading positions in frozen
waffles, toaster pastries, cereal bars, and other convenience
foods. Following the acquisition of Keebler, Kellogg will also
hold the No. 2 position in the cookie and cracker categories.
The ratings benefit from global, and increasing product
diversification. Pro forma for the Keebler acquisition,
Kellogg's international and U.S. biscuits and convenience foods
segments will account for about 43% and 30% of sales
respectively. This partially mitigates the high level of
competition in the U.S. cereal market.
Financial results will weaken materially following the
completion of the Keebler acquisition. Pretax interest coverage
will temporarily fall to about 4x, and total debt to EBITDA
will temporarily rise to the mid-3x area.
However, Standard & Poor's expects future discretionary
cash flow (after capital spending and dividends) to be used
largely for debt reduction. A combination of debt reduction and
earnings growth is expected to result in a significantly
improved financial profile over time.
OUTLOOK: STABLE
The outlook anticipates that Kellogg will maintain its
strong market positions. The Keebler acquisition will weaken
Kellogg's financial profile in the near term. However, strong
cash flows should allow the company to strengthen its ratios
over time, Standard & Poor's said.
RATINGS LOWERED AND REMOVED FROM CREDITWATCH
To From
Kellogg Co.
Corporate credit rating BBB/A-2 AA/A-1+
Senior unsecured debt BBB AA
Commercial paper A-2 A-1+
REUTERS
Rtr 14:15 12-29-00 |
