The first company in this spinoff will focus on “global snacking,” with about $11.4 billion in net sales last year. Kellogg operates several snacking brands, such as Pringles and Pop-Tarts.
Meanwhile, the second company in the spinoff will focus on cereal, including popular cereal brands Raisin Bran and Rice Krispies. Cereal-related brands brought in about $2.4 in net sales last year.
Finally, the last company will center on Kellogg’s MorningStar Farms brand and create plant-based foods. Plant-based foods accounted for $340 million in net sales and carry “strong long-term category prospects.” Kellogg will also explore other strategies for its plant-based business, such as a potential sale.
CEO Steve Cahillane explained the following:
“Kellogg has been on a successful journey of transformation to enhance performance and increase long-term shareowner value […] These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities.”
Kellogg’s spinoff will allow each of the new companies to focus on their strengths. All three companies will also be unhindered by each other’s shortcomings, allowing their valuations to be independent.
Kellogg Stock: Kellogg to Split Into Three Companies
Last year, Kellogg’s cereal and plant-based businesses accounted for 20% of total revenue. The remaining revenue was attributable to snacks, frozen breakfast foods, international cereal and noodles.
The spinoff of these businesses will be a tax-free event. The names for each company as well as the capital structure and governance surrounding the spinoff all remain undecided as of now.
Kellogg stock shareholders will receive shares of the two spinoff companies on a pro-rata basis. While the record date for the spinoffs has not yet been finalized, investors can expect Kellogg stock to drop in correlation with the spinoff dividend amount once the transaction is completed. Kellogg expects to “maintain a strong aggregate dividend and return-on-capital profile across the three businesses.”
The snack industry is Kellogg’s largest business and is expected to continue to grow quickly. According to the company, 60% of net revenue came from global snack brands like Cheez-It and Pringles. Through the spinoff, the snacking business seeks to increase profit margins and expand further into emerging markets.
Kellogg expects to close the spinoff transaction by the end of 2023.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.