Kraft Foods to split into two
4 August 2011 – Kraft Foods has announced that it intends to split into two independent public companies: A high growth global snacks business with estimated revenue of approximately $32 billion and a high margin North American grocery business with estimated revenue of approximately $16 billion. The company expects to create these companies through a tax free spin off of the North American grocery business to Kraft Foods shareholders.
Over the last several years, Kraft Foods has transformed its portfolio by expanding geographically and by building its presence in the fast growing snacking category. A series of strategic acquisitions, notably of LU biscuit from Danone and of Cadbury, together with the strong organic growth of its Power Brands, have made Kraft Foods the world’s leading snacks company. At the same time, the company has continued to invest in product quality, marketing and innovation behind its iconic North American brands, while implementing a series of cost management initiatives. As a result, the company has delivered strong results in very challenging economic conditions.
Having successfully executed its transformation plan, and 18 months into the Cadbury integration, the company has, in fact, built a global snacking platform and a North American grocery business that now differ in their future strategic priorities, growth profiles and operational focus. For example, Kraft Foods’ snacks business is focused largely on capitalising on global consumer snacking trends, building its strength in fast growing developing markets and in instant consumption channels; the North American grocery business is investing to grow revenue in line with its categories in traditional grocery channels through product innovation and world class marketing, while driving superior margins and cash flows.
The company believes that creating two public companies would offer a number of opportunities:
• Each business would focus on its distinct strategic priorities, with financial targets that best fit its own markets and unique opportunities.
• Each would be able to allocate resources and deploy capital in a manner consistent with its strategic priorities in order to optimise total returns to shareholders.
• Investors would be able to value the two companies based on their particular operational and financial characteristics and thus invest accordingly.
Global snacks will consist of the current Kraft Foods Europe and Developing Markets units as well as the North American snacks and confectionery businesses. As an independent company, global snacks would have estimated revenues of approximately $32 billion and a strong growth profile across numerous fast growing, attractive markets. Approximately 75 per cent of revenues would be from snacks around the world, and approximately 42 per cent would come from developing markets, including a diversified presence in numerous highly attractive emerging markets. The business would have a strong presence in the fast-growing and high margin instant consumption channel. The non-snacks portion of the portfolio would consist primarily of powdered beverages and coffee, which have a strong growth and margin profile in developing markets and Europe. Key brands would include Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee, and Tang powdered beverages.
Management is developing detailed plans for the Board’s further consideration and final approval. To execute the transaction requires further work on structure, management, governance, and other matters, which will take approximately 12 or more months. The current target is to launch the new companies before year end 2012. The company will provide interim updates as appropriate. Throughout the process, management will remain focused on continuing to realise the benefits of the Cadbury integration and delivering strong business results.
