Shares of global snack company Kellanova(NYSE: K) are soaring on Wednesday, just a little over a week after the last time they soared. This is usually a sleepier stock, but today, a rumor was confirmed: Mars plans to buy the company for $35.9 billion. And that's why Kellanova stock was up almost 8% at 10:30 a.m. ET.
An irresistible offer
In October, Kellogg Company spun off its North American cereal business as WK Kellogg, and the remaining brands and geographies became Kellanova. Management said that this would create a higher-growth snack business more attractive to investors. And apparently, it was attractive to privately held Mars as well.
Mars -- parent company to snack brands such as Snickers and Skittles -- intends to acquire Kellanova for $83.50 per share. As of this writing, that represents about 4% more upside for Kellanova stock.
RBC Capital analyst Nik Modi had previously suggested Kellanova could be worth $108 per share in a buyout -- almost 30% more than the current buyout price. However, I believe Mars is being generous. Its offer is close to three times Kellanova's sales. That's a fair price for a food company with modest growth.
What should shareholders do now?
Let's keep things simple. Here are the two most likely outcomes: The deal will go through, or it won't. As to the first possibility, it may take time. And once it does, the stock has only about 4% upside left. Shareholders should ask whether that's enough for them to keep holding now.
Shareholders should consider that Kellanova stock is trading at an all-time high right now and trading about 40% higher than its recent average. So if the deal fails to go through for whatever reason, I think it's reasonable to expect a near-term drop in Kellanova stock.
I think it makes a lot of sense to sell Kellanova stock now and reinvest that money elsewhere.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Kellanova and WK Kellogg. The Motley Fool has a disclosure policy.
