kellogg company split: So, What is happening?
On June 21st, 2022 Kellogg made a surprise announcement of splitting into 3 different, independent companies – one focusing on snacking, one on North American cereal, and lastly, a plant-based business. 20% of its net sales came from plant-based divisions and business of US, Canada and Caribbean cereal. 80% constitutes of the rest of its business. This decision will help an already profitable food company to be well-positioned and increase its valuation.
kellogg company split: Why was this decided?
Steve Cahillane, Kellogg Company’s Chief Executive Officer said “These businesses have significant standalone potential.” This will lead to better resource allocation and operational and financial advantages. This reshapes their current portfolio because their business is becoming increasingly geographically vast as well. To be able to direct proper growth using investments towards desired focus points, this move was made.
Different strategic priorities, flexibility, and increased profitability will be a result of this split for each company. The separation will be beneficial for each sector in the following ways (Temporary company names)
- Global Snacking Co. – Maintain and amplify leadership position in
- North America Cereal Co. – A tax spinoff, greater facility, better resource management
- Plant Co. – A tax-free spin-off, alternatives include a possible sale
The cereal company and the plant-based company are targeted to be completed by 2023.
Kellogg company split: After the announcement
Kellogg already had outperformed its forecast for quarter 1. After this announcement of Kellogg Company Split that came as a surprise, there was a surge in its price. Today, it has seen a surge of 1.95% and is trading at $68.86 whereas for the last 5 days it was -0.20%. Shares of Kellogg stock are up about +6.9% year-to-date (YTD). The consensus among analysts is to hold the share – The 2022 forecast for earnings per share ranges from $4 to $4.23. Shareholders will receive shares of the two spinoff companies on a pro-rata basis i.e. in proportion to their owned portion of Kellogg as and when the transaction happens.
Based on its potential for the future, the stock is not oversold or overbought, it is at a fair value right now and is expected to grow from here. This event also led to a rebound in The Dow Jones Industrial Average.
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kellogg company split: For New Investors
The transaction will be completed by 2023. As the spin-offs of the cereal company and the plant-based companies are tax-based, the shares to Kellogg company shareowners will be tax-free. It is currently rated at a fair value and the demand for this share is expected to grow, those purchasing before the split will benefit from tax-free distributions. The company aims to maintain an adequate dividend and return-on-capital profile across the three businesses as per the current press release.
All three businesses are expected to remain profitable. Traditionally, a company split is always more profitable for shareholders. It is worth noting that due to this split, losses in one segment will not have a spillover effect on the other division. Cereal sales are stagnant in the US while plat-based are on the rise. The snack division already accounts for a large portion of the market and the competition is rising.
If one owns Kellogg shares, in the past, industry effects of all three businesses would be felt on the shares. However, following the stock split, the shareholders have a choice to opt for only that part of the business which shows promising growth. It is unpredictable which business will succeed more but, Kellogg is an industry-leading food company and is expected to perform well. Capital structures, dividends, governance, and other matters for each business will be announced at a later date.
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