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How to Capitalize on Kellogg's Takeover Rumors

NEW YORK (TheStreet) -- Kellogg's (K - Get Report) shares rose 6% Thursday following speculation that the company may be a takeover target. Is this a likely scenario for the branded cereals and snacks company?

With a market capitalization of around $23 billion, any bidder would need big pockets. Looking back through history, one sees that bigger deals in the branded consumer goods sector have occurred.

In February 2013, a consortium including Warren Buffett bought Heinz for just over $28 billion. When the deal was announced, Buffett placed great emphasis on the strength and sustainability of the Heinz brands. A similar case could be made with Kellogg's. Few households in North America or Northern Europe will not have a packet of at least one of the company's core brands such as Corn Flakes, Special K, Pringles or Nutri-Grain in their cupboards.

Despite good brands, recent corporate results from the company have disappointed, with company guidance suggesting that "underlying internal operating profit" is expected to rise between 0% to 2% in 2014. Pretty dull.

This low profitability increase centers on consumers around the world impacted by austerity downtrading to cheaper supermarket generic brands or just simply consuming less. Kellogg's has hiked advertising and marketing to try to battle back. It has launched a cost-cutting campaign called "Project K" that will send about 7% of the company's workforce packing.

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