Global food company Kraft will create two new public companies; a snacks business and a grocery business based in the US
August 5, 2011
Global food company Kraft will create two new public companies; a snacks business and a grocery business in the US.
The Illinois, US-based company has a revenue of $49.2 billion, more than half of which is earned outside North America.
Twelve of the company’s iconic brands — including Cadbury, Jacobs, Kraft, LU, Maxwell House, Milka, Nabisco, Oreo, Oscar Mayer, Philadelphia, Trident and Tang generate revenues of more than $1 billion annually.
Chairman and CEO Irene Rosenfeld says Kraft’s second quarter results show the businesses is in a cycle of growth and investment, which she fully expects to continue.
“We have built two strong, but distinct, portfolios,” Rosenfeld says.
“Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realise their full potential.
“The next phase of our development recognises the distinct priorities within our portfolio.”
Rosenfeld says Kraft’s global snacks business has tremendous opportunities for growth as consumer demand for snacks increases around the world.
“The North American grocery business has a remarkable set of iconic brands, industry-leading margins, and the clear ability to generate significant cash flow,” she says.
Kraft expects its new snacks company to generate an revenue of approximately $32 billion and the North American grocery business to pull in approximately $16 billion.
The company says it will create the separate companies using a tax-free spin-off of the North American grocery business to Kraft Foods shareholders
“Over the last several years, Kraft Foods has transformed its portfolio by expanding geographically and by building its presence in the fast-growing snacking category,” Rosenfeld says.
“A series of strategic acquisitions, notably of LU biscuit from Danone and of Cadbury Plc, together with the strong organic growth of its Power Brands, have made Kraft Foods the world’s leading snacks company.”
At the same time, Rosenfeld says the company has continued to invest in product quality, marketing and innovation behind its iconic North American brands, while implementing a series of cost management initiatives.
“As a result, we have delivered strong results in very challenging economic conditions,” she says.
Having successfully executed its transformation plan, and 18 months into the Cadbury integration, the company says its global snacking platform and North American grocery businesses differ in their future strategic priorities, growth profiles and operational focus.
“Kraft Foods’ snacks business is focused largely on capitalising on global consumer snacking trends, building its strength in fast-growing developing markets and in instant consumption channels,” Rosenfeld explains.
“Meanwhile, the North American grocery business is investing to grow revenue in line with its categories in traditional grocery channels through product innovation and world-class marketing, while driving superior margins and cash flows.”
“Over the course of Kraft Foods’ strategic transformation, management has continually explored opportunities to further enhance performance and increase long-term shareholder value.
“We believe creating two independent public companies is the logical next step.
“Specifically, the two businesses will now benefit from being run independently of each other, rather than as part of the same company.”
Kraft says it hopes to launch the two new companies before the end of 2012.
Some work is still required to perfect structure, management, governance and other matters, which the company says should take approximately 12 or more months.
“Throughout the process, management will remain focused on continuing to realise the benefits of the Cadbury integration and delivering strong business results,” Rosenfeld says.
“Our employees’ hard work and accomplishments have transformed Kraft Foods and enabled us to take this next step in the company’s evolution.”
“Our global snacks and North America grocery businesses both have terrifically talented and dynamic people.
“I’m confident that we will maintain the winning spirit that has been key to our success.”
“The focus and other benefits that come from creating two independent companies will provide even greater opportunities for our people and our brands.”