The first company will include Kellogg’s cereal unit ( K ) in North America, which includes Raisin Bran and Rice Krispies, its snack unit will become a second company, including Cheez-Its and Pringles. And finally, a new “pure plant-based food company” will be anchored by its MorningStar Farms brand.
New names for the spin-offs will be announced at a later date, and the spin-offs are expected to be completed by the end of 2023. The board of directors has approved the plans and the headquarters of the three units will remain unchanged. In a statement, Steve Cahillane, CEO of Kellogg said:
“Kellogg is on a successful transformation journey to improve performance and increase long-term shareholder value. All of these businesses have significant standalone potential, and an enhanced focus will allow them to better direct their resources towards their distinct strategic priorities.”
Shares were up more than 8% in premarket trading. Its shares are up more than 4% in the year. Kellogg explained that separating the companies “will better position each business to unlock its full potential,” especially as the company has grown with acquisitions in recent years. Focusing further on new companies will help create them with “financial goals that best fit their own markets and opportunities”.
By far, the snack business will be the biggest new company. Kellogg said it had more than $11 billion in sales last year and is a “faster growth company than the Kellogg Company of today.” About 60% of their sales come from Pop-Tarts, Nutri-Grain, Pringles and Cheez-It.
Last year, Kellogg was involved in an 11-week strike at four cereal plants, including in the company’s hometown of Battle Creek, Michigan. The new five-year deal includes a ban on factory closures for the duration of the contract and a cost-of-living wage hike to protect workers from rising prices.
Kellogg joins several companies that split to drive growth. Johnson & Johnson (JNJ), Toshiba (TOSBF) and GE (GE) announced similar plans last year. According to Liz Young, SoFi’s head of investment strategy:
“To survive and keep up with market trends, companies need to analyze what their most profitable lines of business are and where they should spend most of their time and focus. Competition is fierce. Sometimes you have to break it down to rebuild it.”
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