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Will Two Heads Be Better Than One at Kraft?

Rosenfeld, Vernon gear up for life after split

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Dow LeaderboardAs Kraft Foods (NYSE:KFT) prepares to split into two publicly traded companies later this year, investors will be watching Chairman and CEO Irene Rosenfeld and W. Anthony “Tony” Vernon like hawks. The challenge for both executives — who each will head one of the companies — will be delivering a higher value proposition separately than the combined company can deliver now.

After the split, expected by the end of the year, Rosenfeld will head the Global Snacks business, which generated about $32 billion in 2011. A 30-year food-and-beverage industry veteran who had a successful run as CEO of PepsiCo‘s (NYSE:PEP) Frito-Lay, Rosenfeld has served as Kraft’s CEO since 2006 and chairman since 2007.

On her watch, Kraft managed the Nabisco integration and Altria spinoff, acquired Cadbury and survived a rancorous marketing and distribution divorce from Starbucks (NASDAQ:SBUX) last year. Current Kraft CFO David Brearton will be CFO at the snack foods-company and will assume responsibility for the company’s information systems.

Vernon, who boasts deep consumer product expertise from 23 years leading Johnson & Johnson (NYSE:JNJ) brands such as Tylenol, Motrin and Splenda, takes over as CEO of the $16 billion North American Grocery business, which will keep the Kraft name. He came to Kraft from the private equity firm Ripplewood Holdings in 2009. Ironically, fellow Ripplewood alum John Cahill, a former senior Pepsi Bottling Group executive, steps in this month as executive chairman of Kraft Foods Group. He will team with Vernon to build the grocery business in the U.S. and Canada.

Splitting the world’s second-largest foods conglomerate into two separate companies was not decided on a whim — the focus and goals of the two divisions recently had drifted apart. In fact, the groundwork for the split was laid soon after Kraft’s $19.5 billion acquisition of Cadbury two years ago. The iconic British brand gave Kraft a powerful stronghold outside North America and advanced its emerging markets strategy dramatically. But the corporate cultures and brand positioning were dramatically different.

The split makes sense when you think about it: Snacks — including Trident gum, Ritz Crackers and the Cadbury confectionery line — now comprise half of Kraft’s product portfolio, and more than half of its business is outside North America. The opportunity for investors: better returns from a focused and agile competitor in the high-growth global snack foods arena, while retaining hefty margins in the slow but stable North American grocery business.

The split should allow each separate company to develop an identity best suited to its market and products. The global snack foods company represents the hottest potential opportunity — Kraft’s Developing Markets growth alone was 20% in its last fiscal quarter, led by dramatic growth in China, Russia, India, Brazil and Ukraine. Rosenfeld believes the new company will be able to leverage the strength of Cadbury’s marketing and distribution networks to expand market share and to launch new products. The company was expected to have captured 70% of the cost synergies of the Cadbury acquisition by the end of last year.

Article printed from InvestorPlace Media,

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