Kellogg Announces It Will Split into 3 Companies

The Kellogg Company announced it will be spinning off its business units into three independent companies, with separate enterprises created for its snacking, cereal, and plant-based businesses. Shares of Kellogg (K) jumped 4% on the news in early trading on Tuesday, and are up close to 9% year-to-date.

Kellogg’s expects the separation of its cereal and plant-based divisions to be completed by the end of 2023. The proposed spinoffs would result in tax-free distributions of shares of North America Cereal Co. and Plant Co., the tentative names of the new companies, to current Kellogg shareholders. Shareholders would receive shares in the two spinoff firms on a pro-rata basis relative to their holdings in Kellogg stock at the time of the spinoff date.

Kellogg Chief Executive Officer (CEO) Steve Cahillane stated that each of Kellogg’s operational divisions have significant standalone potential, and would be better positioned as separate business units. The company released a statement saying it is considering further strategic moves, including a potential sale of its plant-based business. Together with its North American cereal business, the plant-based division accounts for about 20% of Kellogg’s revenue.

Official names for the new companies are yet to be determined, while the management teams will likely be announced by the first quarter of 2023. Kellogg’s remaining business will comprise its snacking division, with Cahillane remaining Chief Executive of the company. Kellogg’s snacking business includes products such as Pringles, Cheez-It, and Pop-Tarts, among others. About half of the company’s revenue is generated in North America, with a growing share coming from Africa and other developing markets.

The first of the proposed spinoff companies will include Kellogg’s cereal division and related products, including Special K cereal, Rice Krispies, and Fruit Loops. In the near term, the focus of the new company will be on regaining lost market share and recovering from supply chain disruptions. In the long run, Kellogg executives believe the standalone company will generate stable revenue while improving profit margins.

Meanwhile, the second spinoff company will feature Kellogg’s current plant-based division, anchored on the Morningstar Farms brand. The division reported $340 million in sales last year, with earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50 million. This places Kellogg’s plant-based division well ahead of competitors such plant-based food company Beyond Meat, which has reported negative earnings for three consecutive years.

The location of the corporate headquarters will remain unchanged, with both spinoffs located in Battle Creek, Michigan. Kellogg will retain its main corporate headquarters in Chicago, with an additional campus in Battle Creek.