(Reuters) -WK Kellogg's shares surged nearly 50% before the bell on Thursday after Reuters reported that Italian candy maker behind Ferrero Rocher is close to buying the cereal maker, uniting two of the world's most recognizable consumer food companies.

Shares of the Michigan-based company hit $26.10, their highest since the maker of Fruit Loops and Frosted Flakes was spun off in 2023.

Ferrero could finalize the roughly $3 billion deal as soon as this week, according to the Wall Street Journal, which first reported the talks on Wednesday.

WK Kellogg had a market capitalization of $1.51 billion, as of Wednesday close.

The company was spun off from Kellanova and holds the North American cereal business of Kellogg, the original parent.

Meanwhile, Cheez-It maker Kellanova is in the process of being acquired by candy giant Mars in a nearly $36 billion deal.

"With its focus on the mature, domestic cereal aisle, we've thought WK's sales prospects would be muted, but believe a deal could enable it to benefit from Ferrero's product and geographic reach," Morningstar analysts Erin Lash said in a note.

WK Kellogg and other packaged food companies have flagged subdued demand due to cautious consumer spending in the U.S. following consistent price increases by firms trying to navigate higher input costs.

Packaged food makers are also under pressure from Health Secretary Robert F. Kennedy Jr.'s Make America Healthy Again Commission to eliminate the use of synthetic dyes.

The maker of Nutella hazelnut spread, Ferrero, has turned into a global group, boosted by the aggressive acquisition campaign launched by its Executive Chairman Giovanni Ferrero.

A potential deal would mark the company's biggest acquisition in recent years. In 2018, Ferrero bought Nestle's U.S. confectionery business for $2.8 billion.

The group reported a turnover of 18.4 billion euros ($19.2 billion) in the financial year ending on August 31 and said it had increased its investments to boost manufacturing capabilities and expand across categories.

(Reporting by Medha Singh and Aishwarya Venugopal in Bengaluru; Editing by Janane Venkatraman, Mrigank Dhaniwala and Sriraj Kalluvila)

Reuters report

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