Kellogg , which makes Corn Flakes and Rice Krispies, is in late-stage talks to buy snack foods company Diamond Foods for more than $1.5 billion, the New York Post reported on Friday, citing unnamed sources.

Kellogg could pay $35 to $40 a share for Diamond, the newspaper reported. Diamond's shares rose 8.6 per cent to $35.66, their highest in more than three years.

Kellogg and Diamond Foods declined to comment on the report.

Diamond Foods makes Kettle potato chips and Pop Secret popcorn. The company has hired Credit Suisse to explore a sale, news and data service Dealreporter wrote in September.

San Francisco-based Diamond has struggled to boost sales this year. Revenue has missed analysts' estimates in each of the last four quarters and the company this year exited a low-margin nut products business.

Kellogg, meanwhile, has been trying to expand its snack foods business through acquisitions and to increase its international presence as breakfast cereal sales decline in the United States.

It bought Egyptian baker Bisco Misr in January and entered into a distribution deal to expand in Africa.

Diamond's biggest shareholders are hedge fund Oaktree Capital Management, with a 14 per cent stake, and BlackRock Institutional Trust Co, with a stake of nearly 7 per cent.

Kellogg's shares were little changed in early trading. – Reuters