Kellogg Plans to Split Into 3 Companies. The Stock Is Spiking.

Text size

Kellogg

stock was rising on Tuesday after the cereal and snack giant announced plans to split into three independent companies.

K

ellogg (ticker: K) will spin off its U.S., Canadian, and Caribbean cereal and plant-based businesses. The names of the companies will be determined later.

The first, “Global Snacking Co.,” will encompass Kellogg’s global snacking, international cereal and noodles, and North American frozen breakfast. Kellogg estimates this company will have about $11.4 billion in net sales from brands including Pringles, Cheez-it, and Nutri-Grain, among others. Chief Executive Officer Steve Cahillane will remain CEO of the company.

“North America Cereal Co.,” with about $2.4 billion in net sales, will be a cereal company focused on the U.S., Canada, and the Caribbean. In the short term, the company will be focused on restoring inventory and profit margins after a series of supply disruptions in 2021, Kellogg said. The company will announce proposed management at a later date.

“Plant Co.” will be a pure-play plant-based foods company with business primarily in North America, with an eye to international expansion. It will have about $340 million in net sales, driven by the MorningStar Farms brand.

“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.”

The spinoffs are all tax-free transactions. Kellogg shareholders would receive shares in the two spinoff entities relative to their holdings at the date of each spinoff. The company expects North America Cereal Co. to be spun off before Plant Co., with both targeted to be completed by the end of 2023.

Over the last year, spinoffs have been a popular way for companies to unlock value for investors because they theoretically allow the pieces of a corporation to trade at higher valuations than they would if trapped inside the company. But spinoffs are rarely straightforward, and can take years to execute, and even longer for the spun off company to start making significant returns.

For Stifel analyst Christopher Growe, the news is a positive for the stock.

“We see strong underlying conditions in Kellogg’s business outside of U.S. cereal, and particularly for snacks, with strong retail sales trends for many of its top brands, pricing continuing to move up to offset input cost inflation, and robust emerging market growth,” he wrote in a research note on Tuesday.

Shares of Kellogg were up 4% to $70.27 on Tuesday. The stock has outperformed the market this year, gaining 9%.

Write to Sabrina Escobar at sabrina.escobar@barrons.com