June 22, 2022

By Lynda Kiernan-Stone, Global AgInvesting Media

Under a plan already approved by its Board of Directors, Kellogg Company intends to split its business into three independent public companies by spinning off its U.S., Canadian, and Caribbean cereal and plant-based businesses. 

“Kellogg has been on a successful journey of transformation to enhance performance and increase long-term share-owner value.  This has included re-shaping our portfolio, and today’s announcement is the next step in that transformation,” said Steve Cahillane, chairman and CEO, Kellogg Company.

The three businesses involved in the move, which the company framed as a “bold action toward transforming Kellogg’s portfolio to further enhance performance and value”, represent approximately 20 percent of its 2021 net sales. The remaining business, which accounts for the other 80 percent of last year’s sales, is focused on global snacking, international cereal and noodles, and North American frozen breakfast lines.

Under the restructuring, Kellogg’s would operate as three separate companies. Although they will be named at a later date, these proposed companies would be:

~ A “Global Snacking Company” with approximately $114 billion in net sales. This would be a global snacking, international cereal and noodles, and North American frozen breakfast business with world-class brands and strong growth momentum and profitability. This company will maintain dual campuses in Battle Creek, Michigan, and Chicago, Illinois, with its corporate HQ in Chicago. 

This business is expected to be a higher-growth company compared to today’s Kellogg Company, with a more growth-oriented portfolio supported by more focused resources and attention to brand building, innovation, and international expansion.

Current Kellogg chairman and CEO will remain in these roles for the Global Snacking Company, which is expected to expand profit margins through operating leverage, revenue growth management, productivity, and scaling in emerging markets.

~ A “North American Cereal Company” with approximately $2.4 billion in net sales. This would be a leading cereal company across the U.S., Canada, and the Caribbean with a portfolio of iconic brands such as Kellogg’s, Frosted Flakes, Froot Loops, Mini-Wheats, Rice Krispies, Kashi, and others, that present a compelling opportunity for investment and profit growth. This company would be headquartered in Battle Creek, Michigan.

The proposed management team for this company will be announced at a later date. However, in the near-term, this company will focus on the restoration of inventory, profit margins, and share position following the supply disruptions of 2021.

In the longer-term, it will focus resources to enhance its portfolio, operating capabilities, and productivity to generate stable net sales over time.

~ And a “Plant Company” with about $340 million in net sales. This business would be a profitable pure-play plant-based foods company anchored by the MorningStar Farms brand. It would signify a significant opportunity to capitalize on strong long-term category prospects by investing in further penetration of the North American market, and future international expansion. This company would also be headquartered in Battle Creek, Michigan. 

Again, the proposed management team for this company will be announced at a future date. But, as a newly independent company, this business will have the opportunity to build on its strong base to focus its resources and investments toward capitalizing on strong category momentum through awareness and North American penetration to accelerate net sales growth over time.

“These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities,” said Cahillane. “In turn, each business is expected to create more value for all stakeholders, and each is well positioned to build a new era of innovation and growth.”

Why?

Over the course of recent years, Kellogg stated that it has undertaken a strategic transformation of its portfolio that involved not only a geographic expansion, but a shift of its focus toward growing categories, particularly in snacking. In support of this strategy, the company has directed resources and capital toward growth categories and markets around the world through several acquisitions and partnerships in emerging markets. It has also strengthened its snacking business through acquisitions, divestitures, and by existing for direct-store delivery, thereby freeing up resources.

The success of these maneuvers has expanded the company’s portfolio, scaled its global snacking business, and significantly expanded its presence in emerging markets, while creating complementary strong and profitable breakfast and plant-based food businesses. Taken together, the outcome has been improved growth in recent years with sustained momentum into 2022. 

The company stated that it believes that now is the time to separate these businesses to give them the freedom to pursue their particular strategic priorities.

These tax-free spin-offs, which are expected to occur by the end of 2023, are expected to result in tax-free distributions of North American Cereal Company and Plant Company shares to Kellogg Company shareholders. These stakeholders would receive shares in the two spin-offs on a pro-rata basis relative to their holdings at the record date for each spin-off.

~ Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Unconventional Ag. She can be reached at lkiernan-stone@globalaginvesting.com.

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