Kellogg’s to split into three independent public companies

USA— Kellogg is planning to split into three independent public companies, sectioning off its iconic brands into distinct snacking, cereal and plant-based businesses, sparking a rally in the food conglomerate’s shares.

The 116-year-old company said the breakup will occur through two tax-free spinoffs, and will give each brand greater autonomy and room for growth.

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Kellogg’s had net sales of US$14.2 billion in 2021, with US$11.4 billion generated by its snack division, which makes Cheez-Its, Pringles and Pop-Tarts, among other brands. Cereal accounted for another US$2.4 billion in sales last year while plant-based sales totaled around $340 million.

The announcement Tuesday comes a decade after Kellogg’s US $2.7 billion purchase of Pringles, which signaled the company’s shift to focusing on the global snacks business with people increasingly eating more often between meals.

Cereal sales, by contrast, have stagnated in the U.S. as people eat on the go and reach for a greater variety of options in the morning.

Brands including Special K, Froot Loops and Rice Krispies which for decades have been a foundation of Kellogg, are no longer seen as key growth drivers for the company.

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In the near term, the cereal spinoff would focus on bouncing back from supply chain disruptions and regaining lost market share. Kellogg expects it would generate stable revenue over time as a stand-alone company while improving profit margins.

“It’s a pretty stable business, somewhat declining,” Cahillane told CNBC following the announcement, adding he expects more innovation and brand building from the spinoff since its brands won’t have to compete with Pringles or Cheez-It for resources.

The remaining business includes its snacks, noodles, international cereal and North American frozen breakfast brands. According to Cahillane, the snack-focused company will also be looking to add to its portfolio through acquisitions.

Kellogg has been weighing spinoffs as a potential strategy since 2018, executives told investors on a conference call discussing the announcement on Tuesday. CEO Steve Cahillane said all three businesses have “significant” standalone potential, although the company is exploring alternatives including a potential sale for its plant-based business.

The company’s corporate headquarters will move from Battle Creek, Michigan, to Chicago, but it will maintain dual headquarters in both cities for its snack company. Kellogg’s three international headquarters in Europe, Latin America, and AMEA will remain in their current locations.

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The tax-free spinoffs are expected to be completed by the end of 2023 and Shareholders will receive shares in the two spin-offs on a pro-rata basis relative to their Kellogg holdings.

Names for the new companies haven’t yet been decided, and proposed management teams for the two spinoffs will be announced by the first quarter of next year. Cahillane will stay on as chief executive of the global snacking company.

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