More confirmation that scale, synergy and are out for American corporates and nimbleness is now the flavour of the times – at least for cereal and snack group Kellogg.
The venerable company has been around since 1894 and Tuesday it revealed that it was splitting itself into three companies.
In doing so, Kellogg became the latest US deliberately slimming down to simplify its structure and concentrate on the snack business.
Wall Street went so what?
After jumping 8% in pre-market trading Tuesday, the actual session saw it start high and slide.
The shares peaked at $US71.26 – up more than 4% – and ended at $US68.86, up 1.95%, which was less than the 2.45% surge for the S&P 500 after the three-day weekend.
The company, founded by W.K Kellogg created Corn Flakes and became known around the world for its breakfast cereals.
It expanded the range to a host of products – many full of sugar which gained a reputation for being unhealthy, which forced changes in the company’s name, product mix and then into a series of acquisitions.
Pop-Tarts were developed – another convenience food that became popular, and unpopular for their sugar content.
Pringles chips, which will be hived off into the snacks company, was bought back in 2012. Kellogg paid $US2.7 billion to Procter and Gamble, which has spent years shuffling its brands and corporate structure to try and make itself more nimble and more responsive to changing consumer needs.
From the giant of the breakfast table, Kellogg is now just another big American corporate looking for new growth after running out of ideas.
It will split itself to look for new gains just as the liners of General Electric has done, Procter and Gamble has done, along with IBM and a host of smaller companies.
In Australia, BHP, Wesfarmers and Woolies have done it in the past couple of years.
Kellogg’s split will see the creation of a global snacking business that would house its international cereal and noodles brands and its North America frozen breakfast division.
The snacks business brought in net sales of $US11.4 billion in 2021, accounting for 80% of group revenue of $US14.2 billion.
Cereal accounted for another $US2.4 billion in sales last year while plant-based sales totalled around $US340 million.
In addition to the separate snacks group, Kellogg will spin off into separate companies its North America cereal business and the plant-based business, for which it is also exploring options, including a sale.
US analysts say the divided Kellogg could end up a target for other faltering food giants, such as Nestle, Mondelez, General Mills or Kraft Heinz.
The move is a final realisation that the cereals business, its original product line, is fading as consumers look for other alternatives to corn flakes, rice bubbles. The development of Pop-Tarts was recognition of that 58 years ago!
The company has in recent years focused more on its global snacking portfolio, as sales of breakfast cereals fell with more Americans snacking and relying on fast-food chains such as McDonald’s and Starbucks for breakfast.
The last major split in the food sector was in in 2012, when Kraft split to create Mondelez.
Kraft was itself taken ver by a Brazilian investment company working with Warren Buffett’s Berkshire Hathaway.
Mondelez made its own big play in the snack business on Monday, when it announced it will acquire Clif Bar & Co., a major energy bar company for $US2.9 billion.
Shareholders will receive shares in the two spinoffs on a pro-rata basis relative to their Kellogg holdings. The splits are due to be done by late 2022 or early 2023.