Kellogg Company Split: Kellogg has announced that it intends to split itself up into three separate publicly traded companies, so dividing its well-known brands into separate cereal, snack food, and plant-based food enterprises.
However, by the time the market opened, the company’s stock had only gained 1.9 percent, having dropped as much as 8 percent earlier. The news was made on Tuesday, exactly 10 years after Kellogg’s $2.7 billion acquisition of Pringles, which indicated the company’s change to concentrate on the worldwide snacking sector in response to the fact that consumers are eating more often in between meals.
Kellogg, along with its competitors such as PepsiCo, the owner of Frito-Lay, and Mondelez, the owner of Oreo cookies, have responded to the trend by expanding their product offerings to include additional snacks and by acquiring more niche brands. Mondelez announced on Monday that it would be purchasing Clif Bar for a total of $2.9 billion.
In contrast, sales of cereal have not increased in the United States due to the fact that more individuals are eating on the go and looking for a wider choice of breakfast alternatives. Kellogg’s foundation was built over many decades on brands such as Special K, Froot Loops, and Rice Krispies; however, these products are not now seen as important growth drivers for the firm. Although the pandemic resulted in an increase in the number of customers who ate breakfast at home for a short period of time, Kellogg anticipates that its cereal business in North America will have flat revenue growth in the future.
“Those who were left scratching their heads in 2012 about the zero-overlap Pringles arrangement should no longer scratch their heads. According to a note that Consumer Edge analyst Jonathan Feeney sent to clients, “It’s the traditional North American business that didn’t match management’s ambitions, and today’s statement makes that definitive.”
In previous years, many investors and management teams had a preference for expansive conglomerates, praising the advantages of merged operations and teams as a reason for their decision. But the “business synergies” that were promised, which are now often mocked as meaningless buzzwords in boardrooms, frequently fell short of expectations.
In addition to this, Farr said that ever since the beginning of the coronavirus epidemic, the significance of supply chains has been subjected to a great deal of scrutiny, compelling CEOs to reevaluate how they may do business in the most effective manner. This may result in the creation of separate business lines.
Kellogg highlighted the success of its worldwide snacking business, putting special emphasis on the expansion it has seen in developing countries. Kellogg anticipates that its snacks operation will increase even quicker in comparison to the heritage firm, which helps to explain why investors may perceive the snacks business as an even more attractive stand-alone company.
In the meanwhile, the activities based on cereal and plants are in distinct phases of expansion: steady sales with the aim of boosting profit margins, and a rising food category with tremendous potential opportunities.
As stated in a statement released on Tuesday by Kellogg’s chair and chief executive, Steve Cahillane, “These companies all have great stand-alone potential, and an improved focus will allow them to better manage their resources toward their individual strategic goals.”
Who is the owner of Kellogg’s?
The strategy has received approval from the board of directors of the corporation. As soon as the firms have been separated, current shareholders will be allotted portions of the cereal and plant-based food entities according to the amount of Kellogg stock that they already own.
The majority of companies that sell packaged food are increasing their investment in the industry by way of multibillion-dollar acquisitions. This includes companies like Hershey Company (HSY.N) and Mondelez International Inc. (MDLZ.O), which did not have a significant presence in the sector in the past.
After the separation, the snacking sector will contain brands such as Pop-Tarts, Kellogg’s Rice Krispies Treats, and frozen breakfast goods such as Eggo waffles in its product lineup. It is going to be the largest of the three, and the present top boss, Cahillane, will be in charge of it.
The Kellogg’s, Frosted Flakes, and Froot Loops cereal brands would be part of the company’s cereal business, while the MorningStar Farms brand would be the cornerstone of the company’s plant-based food industry.
The decision by Kellogg to separate follows similar announcements made by global corporations such as Johnson & Johnson (JNJ.N) and General Electric Co (GE.N) in the previous year. This move highlights how large firms need to be agile in order to compete for market share. continue reading
Companies sometimes break up in an effort to eliminate what is known as a “conglomerate discount.” This is a situation in which the value of the conglomerate is lower than the “sum of the parts” if the component firms are operated independently.
“It is splitting now to take advantage of growth opportunities as economies slow and new growth is hard to find in all aspects of the business,” said Randy Allen, a senior lecturer at Cornell College of Business. “It is splitting now to take advantage of growth opportunities as economies slow and as new growth is hard to find in all aspects of the business.”
Why did the Kellogg fail?
The user was referring to the event that took place in November 2021, which was an 11-week strike that took occurred at four of Kellogg’s cereal facilities. After the employees adopted a labor contract that gave raises and expanded benefits to all workers, the workers put a stop to the strikes that had been going on.
Another person on Twitter, on the other hand, responded negatively to the unionization notion by commenting, “Even though I’m a strong supporter of labor unions, this has nothing to do with them. Kellogg’s is taking this step to divide its businesses in order to ensure that the enormous rise in the price of wheat would have an effect on just one of the three firms. This will one hundred percent shift both losses and earnings to one firm or the other “other.”
Kellogg’s cereal business and associated goods, such as Special K cereal, Rice Krispies, and Fruit Loops, are going to be the first items to be spun off into their own company as part of the planned spinoffs. In the short term, the new company’s primary emphasis will be on recovering from supply chain interruptions and reclaiming the market share that was previously lost. Kellogg executives are of the opinion that the independent firm will, over the course of time, produce consistent revenue while simultaneously expanding profit margins.
While this is going on, the second spinoff firm will be comprised of Kellogg’s existing plant-based division, which will be centered on the Morningstar Farms brand. The division’s revenues for the prior year were $340 million, while its profits before interest, taxes, depreciation, and amortization (EBITDA) totaled $50 million. This leaves Kellogg’s plant-based segment in a far better position than its rivals, such as the plant-based food firm Beyond Meat, which has reported losing money for three years in a row.
Both of the company’s spinoffs will continue to call Battle Creek, Michigan their home, which will continue to be the site of the company’s headquarters. Kellogg will keep its primary corporate offices in Chicago, but it will also establish a campus in Battle Creek, Michigan.