Kellanova (K; Baa2/NR/BBB) potential composite rating uplift, potential for supply

Reuters is reporting Mars (A1/A+) is in " advanced talks to acquire snack-maker Kellanova" according to people familiar with the matter. Both parties refused to comment. Mars is privately held and family owned. Kellanova will be larger than any recent acquisitions at $28b EV ($6.5b of that in debt).

• Reminder Kellanova is parent of brands including Pringles, Nutri-Grain & Separate to the North America Cereal Business WK Kellogg after their split last year (took effect in the reported/4Q) - public credit remains/only under Kellanova/K.
• CoC at 101 requires junk ratings but we are looking at a 5-notch composite rating uplift on Mars current standalone.
• We don't have Mars exact financials but issuance on a deal looks very likely (FCF looks to be ~$3.5/yr). Rating pressure for Mars also looks likely - how much will be contingent of pro-forma targets it makes. It's never issued in euro's before, unclear if it will start now.
• We said above € line show limited upside - that is true on XCCY/against $ but within local comps there is room for a move tighter; particularly for €34s but again we would need to get a look at Mars financials to see standalone metrics & deal is only at the rumour stage right now (though sources sound firm).
• Reuters pegs the $27b deal at the largest for Mars beating its 2017 purchase of veterinary hospital operator VCA for $9.1b. Expect regulator scrutiny on this size.