Kellogg thinks it makes more sense apart than together
Following a trend of breaking up conglomerates, Kellogg Co. last week announced plans to split into three independent companies: global snacks, North American cereal and plant-based foods.
“These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities,” said Steve Cahillane, Kellogg’s CEO, in a press release.
Under the plan, its North American cereal and plant-based businesses, which collectively represented only 20 percent of its sales in 2021, will be spun off. The remaining primary business is centered on snacking — Pringles, Cheez-It, Pop-Tarts, Kellogg’s Rice Krispies Treats, Nutri-Grain and RXBAR— as well as international cereal and noodles and the North America frozen breakfast unit, including Eggos.
As the fastest growing and highest margin segment, the snacking business is expected to earn a higher stock multiple as a stand-alone.
The heritage cereal business, including Frosted Flakes and Rice Krispies, is expected to see stable sales as it seeks to regain share after facing supply chain disruptions, a fire and a strike over the last year. Kellogg promises more innovation as the brands won’t be competing for resources against the massive snacking business.
The plant-based food business, led by MorningStar Farms, is profitable and offers huge growth prospects in an emerging food category. Kellogg may sell it outright.
Kellogg joins other conglomerates like General Electric, Johnson & Johnson and Toshiba that announced breakup plans late last year as well as significant divestitures announced over the last year at Smucker, Mondelez and General Mills. Many attribute the shift away from sprawling conglomerates to General Electric in the sixties after some questioned the synergies realized.
Kellogg’s stock lost ground in the days following the spinoff announcement as some analysts expressed concern about the stand-alone costs for the spun-off businesses and the stranded overhead for the continuing snacks company.
Ken Goldman, at JPMorgan, wrote in a note, “Whatever Kellogg’s triumvirate of spin-offs gains in operating and financial focus, it loses in reduced scale, dis-synergies, and the cash cost of the break-up.”
Analysts predict if the Kellogg split proves successful, more conglomerate break-ups will follow.
- Kellogg Company Announces Separation Of Two Businesses As Bold Next Steps In Portfolio Transformation – Kellogg Company
- Kellogg to separate into three companies focusing on snacks, cereal and plant-based foods – CNBC
- Breaking up Kellogg’s: Why the maker of Pringles and Cheez-Its thinks splitting off Corn Flakes and Pop-Tarts is a Gr-r-reat idea – Business Insider
- Kellogg Is Splitting Into 3 Companies. The Move Isn’t as Flaky as It Looks. – Barron’s
- Kellogg’s plan to split up fails to impress some analysts – Baking Business
- Kellogg will split into 3 companies as it leans into snacks – The Washington Post
- Kellogg separation isn’t as big a deal as the Kraft-Mondelez split, analysts say – MarketWatch
DISCUSSION QUESTIONS: Which business — snacks, cereal or plant-based food — benefits the most and least from Kellogg’s potential spinoffs? Is the divestiture of many mega-conglomerates healthy for the retail industry and do you see it continuing?