Kraft Heinz, from the wedding to the divorce between ketchup and sausages
The business world tends towards breakups in some sectors to focus and reduce business complexity.
BarcelonaIn the business world, there are also trends and changes in strategy. And sometimes, they work like a pendulum: in some periods, concentrations prevail, through mergers or acquisitions; and in others, separations. The American giant Kraft Heinz is a recent example. A decade after integrating brands such as Philadelphia cheese, the famous Heinz ketchup, and Oscar Mayer sausages into a single group, the two companies are separating.
On the one hand, the sauces, condiments, and spreads business; and on the other, the food business in North America. The sauces and condiments company, provisionally named Global Taste Elevation Co., achieved net sales of $15.4 billion (€13.191 billion) last year, and the basic food products business, provisionally named North American Grocery Co., recorded revenues of 9.00.
The group justifies the measure, unanimously approved by its board of directors, by the need to create businesses with a better strategic focus and less complexity. It is not the only company in the sector that has decided to reduce its diversification in order to focus. This break—after creating one of the largest food groups in the world in 2015—coincides with a change in consumer habits, who are moving away from processed foods and opting for healthier and fresher options. The company has reduced its market value by a third since 2017, when it reached its peak.
Ferrero and cereals
In any case, it's not always about splitting a company, but rather selling off parts of the business, as another US food giant, the famous cereal producer WK Kellogg, did. Ferrero, the family-owned Italian confectionery giant that owns brands like Nutella, agreed a few weeks ago to acquire the American company. This purchase represents the European group's latest attempt to grow its business in North America.
WK Kellogg was created in 2023 when the Kellogg Company spun off its cereal business into an independent company. The remaining business, which focused on snacks like Pringles chips, was renamed Kellanova. This company was also acquired by Mars, the family-owned company behind confectionery products like M&M's and Snickers, in a deal valued at more than €30.7 billion. Recently, the Unilever conglomerate decided to spin off its ice cream business, which plans to go public in November.
Typically, spin-offs or sales of parts of a business aim to increase shareholder value, adapt to new consumer habits, or reduce management complexities. But activist investors often also exert pressure for greater profitability. This is what happened with the hedge fund Elliott Investment Management, which sent a letter to the board of directors of PepsiCo, in which it is a shareholder, criticizing the company for "a lack of strategic clarity, slowing growth, and eroding profitability." The capital management firm called for a review of the company's structure, which, in addition to the famous Pepsi soft drinks, owns other brands such as Lay's and 7 Up.
Kraft Heinz's management emphasizes that the separation will allow the appropriate level of attention and resources to be dedicated to all areas of the business, "allowing each respective brand portfolio to reach its full potential." It also seeks to reduce operational complexity by driving greater efficiencies and customizing capital allocation based on each company's strategic ambition, accelerating performance and maintaining financial flexibility. Warren Buffett, the group's largest shareholder through Berkshire Hathaway, criticized the merger between the two companies ten years ago and has now expressed his disapproval of the separation because he believes it does not add value.
Analysts point out that the decline in sales volumes of food, snacks, and beverages following a period of high inflation is driving down companies' share prices. This puts pressure on companies' management teams, who are turning to acquisitions to bolster growth or selling off businesses that are a drag on performance.
In any case, a study by the consulting firm EY and Goldman Sachs (Strategies for successful corporate separations) concludes that when corporate spin-offs are executed well, they can generate combined excess returns of around 6% from announcement to two years after closing, compared to the rest of the companies' industries.
