Illinois-Based Kraft Foods to Split into 2 Companies
(With additional reporting from The Associated Press)
Illinois-based Kraft Foods announced Thursday that it plans to split into two separate companies by the end of next year.
One company would focus on international growth by selling snack products, like Oreo cookies, Trident gum, and Cadbury chocolates. The snacks business is estimated to have revenue of about $32 billion.
The other part of the company would stick to the North American grocery business, which would include Kraft cheese and Maxwell House coffee. Kraft estimates revenue of approximately $16 billion for that part of the company.
"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," Chairman and CEO Irene Rosenfeld said in statement.
The move by Kraft comes at a time when other companies, including Wal-Mart and Target, are trying to respond to one-stop shopping needs by adding more grocery store choices. University of Illinois finance professor Heitor Almeida said Kraft's decision is a smart one because it'll allow the company to spend more time focusing on opportunities for growth.
"It should be ok for the company as a whole, including the employees and everything," Almeida said. "I guess one concern is whether the North American grocery business might become a target for an acquisition for another company because it's clearly the less glamorous one."
While investors reacted well to the news, analysts were skepticism about the strategy and as to whether the deal, when fully formed, will provide shareholder value. Some analysts question the split of what they see as overlapping businesses.
"We are surprised,'' said Morningstar analyst Matt Arnold. "It's definitely a change in philosophy; they used to say we will win with scale. It's tough to say if there is pressure from investors."
Aside from the spinoff plans, Kraft announced that its second-quarter earnings climbed 4 percent to $976 million, or 55 cents per share, from $937 million, or 53 cents per share, a year ago. The food maker's stock gained 92 cents, or 2.7 percent, to $35.22 in premarket trading.
Kraft runs a major food processing plant in Champaign. The company says there are no immediate plans to change its operations in the state.