Thursday, August 4, 2011

Kraft to Split Into Two Companies

News broke this morning that Kraft (KFT) will become two separate companies splitting its global snacks business from the North American grocery business.

Some excerpts from this Wall Street Journal article.

Global Snacks Includes:
...Kraft's European business and developing markets units, as well as snacks and confectionery businesses in North America. With about $32 billion in estimated revenue, it will house the likes of Oreo cookies, Cadbury chocolates and Trident gum, all which have greater prospects for growth in emerging markets and to sell more to consumers on the go.

North America Grocery Business Includes:
...Kraft cheeses, Maxwell House coffee and Jell-O snacks, lacks the growth potential but comes with stronger margins and more reliable sales.

Kraft will separate the two businesses by spinning off its North American grocery business to shareholders. The process is expected to be complete by the end of 2012.

Nelson Peltz, who owns over 12 million Kraft shares, apparently likes the split and said the following to CNBC:

...it is in the "best interest of shareholders to create a unique consumer products business with very high-growth prospects, huge emerging-market exposure and one that separates itself from the slow-growth commodity-related meat and cheese business."

Investors, Peltz said, "now have a choice between investing in this business, which will be a low dividend payer, and the North American food business that will probably be a high dividend payer."

According to CNBC, Warren Buffett also supports the split. Berkshire Hathaway (BRKa) is Kraft's largest shareholder.

Kraft's stock is up more than 3% on the news in what is otherwise a huge stock market sell-off.

Adam

Long position in KFT established at much lower than recent market prices
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
 
Site Meter