Kraft Foods Inc. announced that its board of directors intends to create two independent public companies: A high-growth global snacks business with estimated revenue of approximately $32 billion and a high-margin North American grocery business with estimated revenue of approximately $16 billion. The company expects to create these companies through a tax-free spin-off of the North American grocery business to Kraft Foods shareholders.
"As our second quarter results once again show, our businesses are benefiting from a virtuous cycle of growth and investment, which we fully expect will continue," said Chairman and CEO Irene Rosenfeld in a prepared statement. "We have built two strong, but distinct, portfolios. Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realize their full potential. The next phase of our development recognizes the distinct priorities within our portfolio. The 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."
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. 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 a leading snacks company. At the same time, 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, the company has delivered strong results in very challenging economic conditions.
Having successfully executed its transformation plan, and 18 months into the Cadbury integration, the company has, in fact, built a global snacking platform and a North American grocery business that now differ in their future strategic priorities, growth profiles and operational focus. For example, Kraft Foods' snacks business is focused largely on capitalizing on global consumer snacking trends, building its strength in fast-growing developing markets and in instant consumption channels; 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, the board of directors,, and management, have continually explored opportunities to further enhance performance and increase long-term shareholder value and believe that creating two independent public companies is the logical next step. Specifically, detailed review by the board and management has shown that these two businesses would now benefit from being run independently of each other, rather than as part of the same company.
The company believes that creating two public companies would offer a number of opportunities:
- Each business would focus on its distinct strategic priorities, with financial targets that best fit its own markets and unique opportunities.
- Each would be able to allocate resources and deploy capital in a manner consistent with its strategic priorities in order to optimize total returns to shareholders.
- Investors would be able to value the two companies based on their particular operational and financial characteristics and thus invest accordingly.