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Kellogg to Spinoff Businesses in Shoring Up Porfolio
Michigan Ag Connection - 06/22/2022

Kellogg Company Tuesday announced that its Board of Directors has approved a plan to separate its North American cereal and plant-based foods businesses, via tax-free spin-offs, resulting in three independent public companies, each better positioned to unlock their full standalone potential. The three companies, whose names will be determined later, would be the following:

- "Global Snacking Co.", with about $11.4 billion* in net sales, will be a leading company in global snacking, international cereal and noodles, and North America frozen breakfast, with iconic, world-class brands and strong underlying growth momentum and profitability;

- "North America Cereal Co.", with about $2.4 billion* in net sales, will be a leading cereal company in the U.S., Canada, and Caribbean, with a portfolio of iconic, world-class brands and compelling opportunities for investment and profit growth; and

- "Plant Co.", with about $340 million* in net sales, will be a leading, profitable, pure-play plant-based foods company, anchored by the MorningStar Farms brand, with a significant opportunity to capitalize on strong long-term category prospects by investing further in North America penetration and future international expansion.

"Kellogg has been on a successful journey of transformation to enhance performance and increase long-term shareowner value. This has included re-shaping our portfolio, and today's announcement is the next step in that transformation," said Steve Cahillane, Kellogg Company's chairman and chief executive officer. "These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities. 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."

In recent years, the Company has transformed its portfolio into one that has expanded geographically and shifted toward growing businesses, particularly in snacking categories. To achieve this, it has directed resources and investments toward growth categories and markets around the world, made several acquisitions and partnerships in emerging markets, and strengthened its snacks business through acquisitions, divestitures, and the freeing up of resources by exiting from direct-store delivery. The successful execution of these actions has expanded Kellogg's portfolio, resulting in a scaled global snacking business and significant emerging markets presence, complemented by strong and profitable breakfast and plant-based foods businesses. The outcome of these strategic actions has been improved growth in recent years, with momentum sustained into 2022.

After several years of transformation and improving results, the Company believes it is the right time to separate these businesses so they may pursue their particular strategic priorities.

As independent companies, all three businesses will be better positioned to:

- Focus on their distinct strategic priorities, with financial targets that best fit their own markets and opportunities;

- Execute with increased agility and operational flexibility, enabling more focused allocation of capital and resources in a manner consistent with those strategic priorities;

- Realize improved outlooks for profitable growth; and

- Shape distinctive corporate cultures, rooted in Kellogg Company's strong values, and rewarding career paths for employees of each company.

North America Cereal Co. and Plant Co. will both remain headquartered in Battle Creek, Mich. Global Snacking Co. will maintain dual campuses in Battle Creek and Chicago, Ill., with its corporate headquarters located in Chicago. Kellogg Company's three international regions' headquarters in Europe, Latin America, and AMEA will remain in their current locations.

The proposed spin-offs are intended to result in tax-free distributions of North America Cereal Co. and Plant Co. shares to Kellogg Company shareowners. Shareowners would receive shares in the two spin-off entities on a pro-rata basis relative to their Kellogg holdings at the record date for each spin-off.

We expect the North America Cereal Co. spin-off may precede that of Plant Co., with both currently targeted to be completed by the end of 2023. The transactions will follow the satisfaction of customary conditions, including reviews and final approval by Kellogg's Board of Directors, receipt of an Internal Revenue Service ruling and relevant tax opinions with respect to the tax-free nature of the transactions, effectiveness of appropriate filings with the U.S. Securities and Exchange Commission, and the completion of audited financials of the independent companies.

Capital structures, dividends, governance, and other matters for each business will be announced at a later date. Management is committed to maintaining an investment-grade credit rating for Global Snacking Co. after the separations. In addition, the Company expects to maintain a strong aggregate dividend and return-on-capital profile across the three businesses. The independent dividend and capital structure policies for each business are expected to be competitive relative to their relevant peer sets.

The Company will begin incurring pretax expenses related to executing the transactions and setting up the companies. To ensure visibility into the ongoing results of the businesses, the Company will disclose these up-front costs and exclude them from its adjusted-basis results in its external reporting.

Goldman Sachs is serving as lead financial advisor, along with Morgan Stanley & Co. LLC, and Kirkland & Ellis LLP is acting as legal advisor.


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