Kellogg trading raises concern about takeover

DETROIT — Heavy trading volume of Kellogg stock continued Friday, but the shares retreated sharply from Thursday, when they surged 6% — the Battle Creek, Mich., cereal maker's biggest one-day gain in five years.

So speculation that Kellogg is a potential acquisition target cooled.

In an e-mail today to the Free Press, Kellogg spokesman Kris Charles said: "We don't respond to rumors and speculation."

The nearly century-old company that grew out of failed attempts to make granola that ended with Corn Flakes, has a market value of more than $23 billion. It has a global reach with many well-known brands, but is still deeply intertwined with Battle Creek and Michigan.

"Everyone isn't really sure what's going on," said Kara Beer, president of the Battle Creek Area Chamber of Commerce." People are just looking for answers. When something like this happens, everyone starts to wonder what's going to happen. But, nobody knows."

Kellogg, an active member of the local chamber, has about 2,000 employees in Battle Creek. But in February it said some jobs might be lost there after it opens a regional service center in Grand Rapids.

Kellogg shares rose to $66.39 by Thursday's close, just below its 52-week high of $67.98. But Friday some traders took profits and the shares fell nearly 4% to $63.77 while 6.8 million shares, or more than three times the average daily volume, changed hands.

Late Thursday Bloomberg News reported that more than 25,000 contracts giving investors the right to buy the stock changed hands.

"This is absolutely the kind of options action that could signal takeover activity," Christopher Rich, head options strategist at JonesTrading Institutional Services in Chicago said, according to Bloomberg. "Usually people sell out-of-the-money calls to generate extra income in a stock like this, but that was not what happened here this afternoon. There are definitely bullish Kellogg call buyers here."

In addition, Trade-Ideas — a company that tracks s! tocks — identified Kellogg as a "barbarian at the gate" candidate, TheStreet reported, referring to a 1989 book about the buyout of RJR Nabisco. The stock watcher drew this conclusion by looking at the company's average dollar volume and overall volume.

TheStreet said Trade-Ideas targets these stocks because it is "exhibiting an unusual behavior while displaying positive price action."

Still, high trading volume doesn't mean a deal is imminent.

Moreover, the company may be protected. One of Kellogg's largest shareholders is the W.K. Kellogg Foundation. The foundation was created in 1930 when the cereal pioneer W.K. Kellogg donated $66 million in company stock. Since then, it has grown to become one of the largest philanthropic foundations in the United States with more than $7 billion in assets.

Kellogg's began with cereal in 1906 as the Battle Creek Toasted Corn Flake Co.

W.K. Kellogg and his brother, Dr. John Harvey Kellogg, initially were trying to make granola. Instead, they created a recipe for cornflakes. Later, the company expanded to bran flakes.

Over the years, the company has grown to a global enterprise operating in 180 countries and diversifying its products to more than cereal, which declined in sales in recent years as Americans turn to alternatives such as fast food breakfasts.

In 2012, Kellogg purchased Pringles potato chips for about $2.7 billion, adding to its snack food brands. It makes Cheez-It, Townhouse crackers and Keebler snack foods.

But cereal is still important to Battle Creek residents.

"When you come to Battle Creek," Beer said, "you can roll down your windows and tell what is being made just by the smell."