BATTLE CREEK, Mich. -- Kellogg Co., the world's biggest cereal maker, said yesterday that it had agreed to sell its troubled Lender's Bagels business to Aurora Foods Inc. for $275 million -- 41 percent less than it paid for the brand in 1996.
Kellogg said it will take a charge of $110 million, or 27 cents a share, in the third quarter related to the sale. Kellogg bought Lender's for $466 million in 1996 from Philip Morris Cos.' Kraft unit, and sales have fallen annually by double-digit percentages.
The 70-year-old Lender's business never met the cereal maker's expectations, said Carlos Gutierrez, Kellogg's president and chief executive officer. Sales at the No. 1 maker of frozen, refrigerated and fresh bagels for sale to supermarkets have declined with competition from specialty shops. Lender's had 1998 sales of $210 million.
"It's good that Kellogg is acknowledging the mistake they made and is moving on," said Patrick Schumann, an Edward Jones analyst, who rates the shares "hold."
Aurora has bought well-known brands such as Duncan Hines cake and Aunt Jemima pancake mixes. The San Francisco company will seek to revive Lender's by increasing the size of the bagel, introducing new flavors, adding a sales force and changing packaging as it increases marketing spending by as much as 4 percent, said Vice Chairman James Ardrey.
"For the past three years, it was not an important brand to Kellogg's. It became lost. Kellogg's did nothing to keep quality and product offering current," Ardrey said.
Aurora, which also owns Mrs. Paul's frozen seafood and Celeste frozen pizza, is buying Lender's trademark and plants in Mattoon, Ill., and West Seneca, N.Y. The purchase is expected to close by Nov. 1.
Shares of Kellogg, expected to earn 41 cents a share in the third quarter, fell 31.25 cents to close at $36.6875 yesterday. Aurora's shares fell 62.5 cents to close at $14.1875.
Pub Date: 9/28/99