Shares of Kellogg rose sharply around 4% in the stock market on Tuesday after the company announced its decision to split into three, with each business kept separately. From the meanwhile entire group of the manufacturer of Pringles chips and cornflakes cereals the growing business with food for vegetarians and on the other hand the cereals of the United States, Canada and the Caribbean will be spun off along with many other products.
Both spin-offs account for around 20% of the group’s sales of just over 14,000 million dollars (approx. 13,300 million euros). The other part, which makes up the majority of the current company, will be the global snack food business, which also includes the international cereal business and US frozen breakfast items.
So it’s a split that isn’t strictly geographic or business, as the well-known cereal brands will be represented in two of the entities. The company believes a separation is the best way to drive business growth. The new companies have no names yet, just tentative working names: Global Snacking Co, North America Cereal Co, and Plant Co.
These are tax-exempt spin-offs that will create three separate publicly traded companies, the company said. it is a statement In which its CEO, Steve Cahillane, explains the transaction: “Kellogg has embarked on a successful transformation journey to improve performance and increase long-term value for shareholders. That included transforming our portfolio, and today’s announcement is the next step in that transformation. All of these companies have significant potential in their own right, and greater focus will allow them to better align their resources across their various strategic priorities.”
The Kellogg Group claims that the three companies, as separate companies, will be better positioned to focus on these different priorities, with financial goals that better align with their own markets and opportunities, conduct their businesses with greater operational agility and flexibility, achieve more profitable growth, and different cultures build companies.
Kellogg is thus following in the footsteps of other large US companies that announced their division last year, such as General Electric or Johnson & Johnson. In Spain, the largest proposed operation of this kind is the separation of the Naturgy companies.
North America Cereal Co and Plant Co will continue to be based in Battle Creek, Michigan. Global Snacking Co will retain its dual headquarters in Battle Creek and Chicago, Illinois, but its corporate headquarters will be in Chicago. The headquarters of Kellogg Company’s three international regions in Europe, Latin America and Asia will remain in their current locations.
The separation will be accomplished by delivering the shares of the newly spun-off companies in proportion to those they now hold in Kellogg. The first separation will be the cereals business in North America, and then the vegetarian products business (if that business is not sold first). According to the company, the process should be completed by the end of 2023.
the three companies
The largest of the three companies into which the Kellogg Group will split will be what is now Global Snacking Co, which will focus on the snack food business, the international cereal and pasta business (pasta) and frozen breakfast items in the United States. The company has sales of approximately $11.4 billion and gross operating income of approximately $2 billion, with 2021 figures adjusted based on its new scope.
Almost 60% of their sales come from snacks, in growing categories and led by brands like Pringles, Cheez-It, Pop-Tarts and Rice Krispies, among others. Just under a quarter of net sales come from cereals in international markets, including with brands such as Corn Flakes, Frosties/Zucaritas and Special K. The company argues that staying with Global Snacking Co and not North American cereals strengthens the company’s international business in Europe , Latin America and Asia expanded. About 10% of sales come from pasta in Africa, a fast growing business. The rest, less than 10% of sales, comes from frozen breakfasts and the Eggo brand. Geographically, North America will account for just under half of sales, with emerging markets accounting for around 30% and developed international for over 20%.
The second part of the company has sales of approximately $2,400 million and gross operating income of approximately $250 million. North America Cereal Co focuses on ready-to-eat cereals in the United States, Canada and the Caribbean, also with brands such as Corn Flakes, Frosties and Special K. The snacks company will own the Kellogg’s brand, which it licenses to the cereal companies in North America. “This business is expected to generate stable net sales over time, with improved profit margins driving earnings growth, higher cash flow and higher return on invested capital,” the company says.
The third division is the plant-based products division, which has approximately $340 million in sales for veggie burgers and related products. Its main brand is Morningstar Farms. Kellogg will evaluate the possible sale of the company in parallel with the spin-off. Plant Co currently has offices in the United States, Canada and the Caribbean. As an independent company, international expansion is being considered in the future. Kellogg sees this as a strong growth business.