Kellogg Company (NYSE: K) announced on June 21 that it plans to separate its business into three separate public companies. The tax-free spinoff is expected to be completed by the end of next year and is meant to help each division succeed individually.
"Kellogg has been on a successful journey of transformation to enhance performance and increase long-term shareowner value. This has included re-shaping our portfolio, and today's announcement is the next step in that transformation," Kellogg Company's Chairman and Chief Executive Officer Steve Cahillane is quoted in a press release.
The largest chunk, bringing in around $11.4 billion in net sales, will be made up of the company's international snacking, as well as North American frozen breakfasts. This portion will include brands like Pop-Tarts, Rice Krispies Treats, and Eggo frozen waffles.
Another company will control Kellogg's cereal in the U.S., Canada, and the Caribbean, worth about $2.4 billion in net sales. This business will handle Froot Loops, Frosted Flakes, and other Kellogg cereal brands.
Finally, the smallest company will handle plant-based foods, revolving around the MorningStar Farms brand, and accounting for $340 million in net sales.
"These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities," Cahillane said. "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."
Following Kellogg's announcement, shares for the company saw a 4% increase.
Kellogg got its start in 1894 with the introduction of its Corn Flakes brand, and it quickly became known as an international cereal powerhouse. Over the course of the past decade, however, Kellogg has increasingly invested in the global snacking market, starting with its $2.7 billion acquisition of Pringles.
Since then, the company has continued to buy up small brands and invest in expanding sectors. As a result, Kellogg has become a dominant force in the international snacking industry.
"Those who scratched their head in 2012 about the zero-overlap Pringles deal should scratch no longer. It's the legacy North American business that didn't fit management's plans, and today's announcement makes that final," analyst Jonathan Feeney wrote in a Consumer Edge note to clients.
Kellogg isn't alone in its approach of acquiring more and more small snack brands to distribute globally. Mondelez, the owner of countless major brands including Oreos, Cadbury, Chips Ahoy!, and Sour Patch Kids, recently announced that it would be purchasing Clif Bar in a $2.9 billion deal.
Snack sales are on the rise, but cereals haven't seen the same bump in demand. Historically, brands like Rice Krispies and Froot Loops have been the pillars of Kellogg's business, but the company now expects its cereal division to see flat revenue growth in the coming year.
"It's a pretty stable business, somewhat declining," Cahillane told CNBC regarding the cereal market.
Kellogg's executives told investors on a conference call that, with the cereal market stagnating, they had been considering a spinoff strategy since 2018. Cahillane told CNBC that separating the brands will help its cereal division perform since the products won't have to compete with more successful snack brands for resources.
Separating the plant-based products into their own company may also help attract new investors looking to buy into plant-based foods other than Beyond Meat, which hasn't earned a profit in around three years. However, Kellogg may still decide to sell its plant-based division.
Names for the three companies have not yet been decided, and the company is still considering how it will divide its dividend, according to Cahillane. The base for each division will stay in their current locations, with bases in Battle Creek, Michigan, and Chicago, Illinois.