The Italian candy maker behind Ferrero Rocher and Nutella is nearing a deal to buy cereal maker WK Kellogg (KLG.N),  a source told Reuters, an acquisition that would combine two of the world’s best known consumer food makers.

Shares of WK Kellogg — the company behind Froot Loops and Frosted Flakes — surged about 55% in extended trading, after the Wall Street Journal on Wednesday reported that Ferrero could finalize the roughly $3 billion deal as soon as this week. WK Kellogg currently has a market value of about $1.5 billion.

The companies did not immediately respond to Reuters’ requests for comment.

Purchasing WK Kellogg would be privately held Ferrero’s latest effort to expand its footprint in the U.S. Ferrero, a 79-year-old company that owns brands such as Tic Tac and Kinder in North America, has started buying American brands only recently under the aegis of its Chairman Giovanni Ferrero.

In the past few years, the company has acquired Wells Enterprises, the maker of Blue Bunny and other ice-cream brands, and struck a $2.8 billion deal to buy Nestle’s U.S. chocolate business. Ferrero now has 15 plants and warehouses across the U.S., Canada and the Caribbean, employing more than 5,100 people.

“For Ferrero, this deal presents an opportunity to diversify beyond confectionery and deepen its presence in the U.S. market,” said Arun Sundaram, analyst with CFRA Research. “Since the spinoff and rebrand from Kellogg Company, both WK Kellogg and Kellanova have delivered shareholder value by becoming acquisition targets,” he said.

WK Kellogg, a spin off of Kellogg’s cereal business in 2023, has been struggling with weak demand and declining sales as consumers have traded down from its pricier cereals. It has also come under scrutiny for its use of artificial food dyes in some of its cereals. The company recently said it met with Health Secretary Robert F. Kennedy Jr. and is reformulating its cereals served in schools to not include artificial dyes.

The other part of Kellogg, now called Kellanova (K.N) agreed to sell itself to Snickers owner Mars in a $36 billion deal last year.

“The $3 billion deal would translate to $27.61 per share for equity holders after accounting for $570 million of net debt,” Robert Moskow, an analyst with TD Cowen, said in a note about WK Kellogg.

News Credits- Reuters