Kellogg to split into three separate companies

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Steve Cahillane. Courtesy Steve Cahillane

The Kellogg Company board of directors approved a plan to separate its North American cereal and plant-based foods businesses via tax-free spinoffs, resulting in three independent public companies.

The Battle Creek-based snack and breakfast food maker said Tuesday, June 21, it approved the plan to separate into three independent companies by spinning off its U.S., Canadian and Caribbean cereal and plant-based businesses, which collectively represented about 20% of its net sales in 2021.

The remaining business, which represented about 80% of net sales in 2021, is focused on global snacking, international cereal and noodles, and North America frozen breakfast.

The three companies, whose formal names will be determined later, would be the following:

Global Snacking Co. with about $11.4 billion in net sales — with all sales estimates based on the company’s 2021 unaudited results derived from internal management reporting — will be a global snacking, international cereal and noodles, and North America frozen breakfast foods company.

North America Cereal Co., with about $2.4 billion in net sales, will be a cereal company in the U.S., Canada and Caribbean.

Plant Co., with about $340 million in net sales, will be a plant-based foods company, anchored by the MorningStar Farms brand that Kellogg said will invest further in North America penetration and future international expansion.

North America Cereal Co. and Plant Co. will remain headquartered in Battle Creek. Global Snacking Co. will maintain dual campuses in Battle Creek and Chicago, with its corporate headquarters in Chicago. Kellogg’s three international regions’ headquarters in Europe; Latin America; and Africa, Middle East and Asia will remain in their current locations.

“Kellogg has been on a successful journey of transformation to enhance performance and increase long-term shareowner value. This has included reshaping our portfolio, and today’s announcement is the next step in that transformation,” said Steve Cahillane, Kellogg Company’s chair and CEO. “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.”

Kellogg said it expects Global Snacking Co. will be a higher-growth company than today’s Kellogg Company. The business is expected to expand profit margins through operating leverage, revenue growth management, productivity, and increasing emerging-markets scale, Kellogg said.

Cahillane will remain chair and CEO of Global Snacking Co.

The company plans to separate North America Cereal Co. as an independent, ready-to-eat cereal business operating in the U.S., Canada and the Caribbean through a tax-free spin-off. As a standalone company, Kellogg said North America Cereal Co. will have greater strategic focus and operational flexibility, and will direct capital and resources toward unlocking growth, regaining category share, and restoring and expanding profit margins.

The proposed management team for North America Cereal Co. will be announced later.

The company said it will separate Plant Co. as an independent business through a tax-free spin-off while exploring other strategic alternatives, including a possible sale.

Anchored by the leading MorningStar Farms brand, Plant Co. will offer a portfolio of plant-based offerings across multiple product segments in the U.S., Canada and the Caribbean. Kellogg said it has grown MorningStar Farms steadily since acquiring it over 20 years ago, and the brand now has the highest share and household penetration in the frozen vegetarian/vegan category.

The proposed management team for Plant Co. will be announced later.

Full overviews and outlooks on each company are available here.

Transaction details

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.

Kellogg said the North America Cereal Co. spin-off might precede that of Plant Co., with each 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, 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 later.

The company will begin incurring pre-tax expenses related to executing the transactions and setting up the companies and 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 adviser on the transaction, along with Morgan Stanley & Co. Kirkland & Ellis is acting as legal adviser.

The company will provide updates throughout the transactions at at unleashingourpotential.com.

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