Post Holdings to pay $1.15B for Malt-O-Meal cereal maker

Updated at 5:52 p.m. | Posted at 9:39 a.m.

The nation's number three cereal maker, Post Holdings, is buying privately held MOM Brands, best known for its Malt-O-Meal hot cereal.

Post is paying nearly $1.2 billion dollars for the privately-held company with deep roots in Minnesota. The company will pay $1.05 billion in cash and give MOM Brands owners nearly 2.5 million shares of stock for the acquisition, which is expected to be completed in the third quarter.

Post Holdings Inc. plans to finance most of the deal and sell about $240 million in stock, subject to market conditions.

MOM Brands has a much large production plant in Northfield, where it makes a wide variety of ready-to-eat cold breakfast cereals including Tootie Fruities and Frosted Mini-Spooners.

Post officials say the deal will result in $50 million of "cost synergies." They have not mentioned but Post plans to eliminate duplication in corporate functions and recalibrate production. Both of those moves could hit the more than 1,000 employees who at the cereal plants in Northfield and the corporate headquarters in Lakeville.

In a conference on Monday, Post CEO Rob Vitale said acquiring MOM Brands will help Post solidify its position in the cereal business — especially the low-cost category of bagged cereals and store brands.

"We become the leader in the value segment," Vitale said. "So, I think it gives us a much stronger, newer voice in the category and a significantly more relevant position within the overall category."

Like its much larger rival General Mills, MOM Brands has a long history in Minnesota. The company dates back to 1919, when miller John Campbell took $900 he won playing poker and started a company to make a hot cereal.

Malt-O-Meal, as he called it, would compete with the already popular Cream of Wheat, which got its start in North Dakota. Eight years later, the Campbell Cereal Company as it was known then — moved into the old Ames Mill in Northfield.

MOM Brands still makes its flagship item in that same facility on the Cannon River.

Susan Garwood, executive director of the Rice County Historical Society said the company has embraced Northfield's heritage by remaining downtown and continuing to use the mill.

"Preserving that historic structure, that historic building, yet also maintaining its viable use for their hot cereal really speaks to the importance of the company to the community I think," she said.

The sale of the company comes as cereal makers are struggling. General Mills has been cutting staff and shutting plants lately.

Selling breakfast cereal is a highly competitive game. Although there are multiple offerings at every grocery store, cereal sales have been flat in the last decade and a half as fast food joints, coffee shops and other packaged foods all vie for breakfast customers.

But 2001 to 2011, MOM Brands managed to more than double its sales. Vitale, the Post CEO, said the acquisition would give the combined business 16 of the top 50 cereal brands.

Ken Shea, a food industry analyst at Bloomberg, said there are still opportunities to make money in cereal, even though it is a well-established market.

"It's not growing much, but the economics are such that it still generates a decent return on investment for producers, so they're going to continue to do it," Shea said. "They're looking for as many ways to innovate as they can to reach new consumers. But it's just a tough market, and this consolidation here is consistent with other mature categories."

Shea said less competition could in theory lead to higher costs at the checkout. But he said consumers have become accustomed to bargains on cereal, so companies may be reluctant to hike prices.

Post, which is based in St. Louis, also makes nutrition drinks and a variety of store-brand products including pasta and peanut butter.

It said Monday that it expects about $1.07 billion in revenue for the fiscal quarter that ended Dec. 31. That includes some results from the company's acquisitions of the PowerBar and Musashi brands as well as American Blanching Co.

Post plans to close on its purchase of MOM Brands between July and September of this year. MOM Chairman and CEO Chris Neugent will stay on to lead the MOM Brands business.

Investors loved the deal. On a day when the major stock market indices were basically flat, Post Holdings shares jumped a whopping 18 percent to close at $48.83.

The Associated Press contributed to this report.