Ayush Bansal
Image: Persia Digest
Kellogg said on Tuesday it was splitting into three independent companies by spinning off its North American cereal and plant-based foods businesses, becoming the latest big U.S. firm to break itself up.
Shares of the company, which began life in 1894 when W.K Kellogg created Corn Flakes and became known around the world for its breakfast cereals, jumped 7% in pre-market trading.
In recent years, however, the company has focused on building its snacking portfolio. It includes its international cereals and noodles, and North American frozen breakfast business. The division brought in $11.4 billion in net sales in 2021, accounting for 80% of its total sales.
Kellogg said its other two divisions – U.S., Canadian, and Caribbean cereal and plant-based businesses – collectively represented about 20% of its net sales in 2021.
The breakup of the Pringles and Pop-Tarts maker would result in the creation of a global snacking business that would also house its international cereal and noodles brands and its North America frozen breakfast division.
Kellogg’s which also owns MorningStar Farms, the plant-based food maker, said Tuesday that the spinoff of the yet-to-be-named cereal and plant-based foods companies should be completed by the end of next year.
Kellogg’s had net sales of $14.2 billion in 2021, with $11.4 billion generated by its snack division. Cereal accounted for another $2.4 billion in sales last year while plant-based sales totaled around $340 million.
“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 CEO Steve Cahillane.
Mr. Cahillane will become chairman and CEO of the global snacking company. The management team of the cereal company will be named later. The board of directors has approved the spin-offs.
Names for the new companies haven’t yet been decided, and proposed management teams for the two spinoffs will be announced by the first quarter of next year. Cahillane will stay on as chief executive of the global snacking company.
Headquarters for the three businesses will remain unchanged. Both the North American cereal company and the plant-based food spinoff will be located in Battle Creek, Michigan. The global snacking company will keep its corporate headquarters in Chicago, with another campus in Battle Creek.
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The decision by Kellogg to split follows similar announcements by global conglomerates such as Johnson & Johnson (JNJ.N) and General Electric Co (GE.N) in the past year and underscores how big companies need to be nimble in their fight for market share.
It is a particularly perilous time in the industry due to rising costs, both for labor and materials. Russia’s invasion of Ukraine has pushed grain prices higher. This month the U.S. reported that inflation is hitting four-decade highs.