Issue 584
August 8, 2011
Editorial
Divide and conquer. It seems to be the corporate mantra of the moment.
At the start of the year, meats, bread and coffee maker Sara Lee surprised industry watchers with the announcement that it would split in two.
Last month, US food maker Ralcorp Holdings said it would spin off its branded cereals business Post Foods. And there have been many similar moves across the business world this year.
Last week, our industry saw one of the biggest spin-off announcements this year, with Kraft Foods' decision to create two publicly-listed companies - a North American grocery business and a global snacks maker.
Last week, our industry saw one of the biggest spin-off announcements this year, with Kraft Foods' decision to create two publicly-listed companies - a North American grocery business and a global snacks maker.
The move stunned the industry, not least because the global snacks business will have Cadbury, which Kraft acquired just eighteen months ago, at its heart. Kraft's pursuit of Cadbury was a bitter one.
Then Cadbury chairman Roger Carr dismissed Kraft as a "low-growth conglomerate". He argued the Dairy Milk maker's status as a "pure-play" confectioner with "sharp category focus" meant it should stay independent.
When Kraft finally won over the Cadbury board with a higher offer, the US firm's chairman and CEO Irene Rosenfeld said the UK confectioner would in fact benefit from its new owner's increased scale.
Kraft's split effectively reverses the controversial acquisition and, last week, when Rosenfeld outlined the advantages of the move, she insisted the two new businesses would benefit from better focus.
When Kraft finally won over the Cadbury board with a higher offer, the US firm's chairman and CEO Irene Rosenfeld said the UK confectioner would in fact benefit from its new owner's increased scale.
Kraft's split effectively reverses the controversial acquisition and, last week, when Rosenfeld outlined the advantages of the move, she insisted the two new businesses would benefit from better focus.
The decision was welcomed by Wall Street. One analyst said the move "made complete sense".
However, Rosenfeld's comments suggested Carr's argument had - belatedly - prevailed. Has her apparent volte-face dented her reputation?
Once analysts had digested Kraft's news, thoughts turned to who could be next.
However, Rosenfeld's comments suggested Carr's argument had - belatedly - prevailed. Has her apparent volte-face dented her reputation?
Once analysts had digested Kraft's news, thoughts turned to who could be next.
Almost immediately, there was speculation that PepsiCo could look to split in two, with Morningstar analyst Phil Gorham suggesting the US food and drinks giant's stock was being "weighed down" by its beverage business.
The cola and crisps maker, however, insisted its business model was "right for today and right for moving forward".
Over at Sanford Bernstein, Alexia Howard wondered if Campbell Soup Co. or Heinz could also look to break up their businesses.
"Campbell's has two very distinct businesses in the form of soup, sauces and beverages and its baking and snacking business," she said. "With Heinz, its North American frozen products are focused in the US, while ketchup and sauces and baby food are much more global."
According to Bloomberg, 2011 is set to see the most spin-offs on record.
According to Bloomberg, 2011 is set to see the most spin-offs on record.
Will Kraft be the last food company to believe smaller is better?
Until next time...
Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food
Until next time...
Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food
