The maker of Malt-O-Meal, a 95-year-old Minnesota company still owned by its founding family, will be purchased by Post Holdings for $1.15 billion, combining the third- and fourth-largest U.S. cereal makers.
MOM Brands, as the Malt-O-Meal company has been called since 2012, is perhaps best known by Minnesotans for its namesake hot wheat cereal, still churned out at a vintage mill in Northfield. But the company hit the big leagues by selling low-priced cold cereal in bags and producing knockoffs of major brands.
Its Tootie Fruities, for instance, are a dead ringer for Kellogg’s Froot Loops.
By merging with Post, MOM Brands will get more resources with which to innovate and expand its distribution, said MOM Brands CEO Chris Neugent.
“I think this combined company gives both MOM Brands and Post the resources needed to be a fresh voice in this category,” Neugent said. “I think that’s certainly what the consumer wants.”
Indeed, the breakfast consumer today has grown somewhat tired of cereal, and the multibillion-dollar cereal business has seen sales fall in recent years. MOM Brands and St. Louis-based Post have felt the pain, as have the industry’s two biggest players, Golden Valley-based General Mills and Michigan’s Kellogg Co.
When an industry’s sales slow with no solution in sight, consolidation often follows. The MOM Brands deal “is a realization that cereal is a slow-growth or negative-growth category,” said Rick Shea, a consumer products industry consultant based in Chanhassen.
900 Minnesota workers
MOM Brands employs 1,550 people, including 900 in Minnesota. In Northfield alone, it has 651 workers, mostly at the cold cereal plant known as Campbell Mill, named after John Campbell, the Owatonna grain miller who founded Malt-O-Meal with $900 in poker winnings, then ran the firm for decades.
Campbell staked out Northfield as his production base in the 1920s. The company has been Northfield’s largest private employer, along with St. Olaf and Carleton colleges.
MOM Brands also employs 251 at its Lakeville corporate office. Some jobs there might be in jeopardy, as they often are in post-buyout cost reductions. Post said it will cut $50 million in annual costs from its combined cereal business after the deal closes, which is expected to be sometime from July through September.
The Post-MOM Brands combo also will be looking at “rationalizing” its production capacity, meaning that it could shutter production in some places. “From a manufacturing standpoint, there’s excess capacity at both Malt-O-Meal and Post,” Shea said. Still, “Malt-O-Meal has a great asset base. Its [main] plants are highly automated and are good from a cost structure standpoint.”
Neugent told the Star Tribune that it’s “too early” to talk about any layoffs. “There will be a team formed from MOM and a team formed from Post, and over the next few months we will work collaboratively to determine what the new organization will look like.”
Neugent will continue leading MOM Brands as its president, reporting to Richard Koulouris, newly hired head of Post’s entire cereal business.
Post, maker of Honey Bunches of Oats, Fruity Pebbles and Grape-Nuts, is the No. 3 player in cereal based on dollar value, while MOM Brands is fourth. Together, they will have an 18 percent share of the U.S. cold cereal market measured by revenue, Post said. Right now, Post has an 11 percent share; General Mills and Kellogg each has a share of just over 30 percent.
Malt-O-Meal Co. was known for decades for one product: its hot cereal. Today, its core business is its Malt-O-Meal-branded cold cereals; hot cereals comprise only about 10 percent of sales, led by the Better Oats oatmeal brand.
Malt-O-Meal succeeded with little conventional advertising but low-priced versions of established brands. The company’s bestselling cereal, Frosted Mini Spooners, resembles Kellogg’s Frosted Mini-Wheats. MOM Brands also makes private-label cereals and cereals under the Mom’s Best moniker.
The company’s sales more than doubled over the decade ending in 2011, and last year it had revenue of about $760 million. Post said that for 2014, MOM Brands recorded about $120 million in earnings before interest, taxes, depreciation and amortization.
MOM Brands has two other major cereal plants, including one each in North Carolina and Utah, and a smaller plant St. Ansgar, Iowa, just south of the Minnesota border.
Post will pay $1.05 billion in cash, and will finance the rest of the deal with up to $700 million in secured debt and the sale of about $240 million in equity. Investors cheered the deal: Post’s stock rose 18 percent Monday.
“For Post, this is the right move in the right category,” Post CEO Rob Vitale said in a statement. “After a century of spirited rivalry between MOM Brands and Post, we now look forward to combining our strengths.”
MOM Brands marks Post’s second major deal in Minnesota over the past year. In April, it announced the $2.45 billion purchase of Minnetonka-based Michael Foods, a big player in the liquefied and processed egg business.