Sat, Aug 06, 2011 - Page 10 News List

Kraft plans to split into two publicly traded companies


Kraft Foods Inc said it plans to split into two publicly traded companies, with one focusing on its international snack brands, such as Trident gum and Oreo cookies, and the other on its North American groceries business that includes Maxwell House coffee and Oscar Mayer meats.

The move by the food giant to split its high-growth international business from its domestic grocery brands highlights the increasing focus by US companies on growth in emerging markets.

“Simply put, we have now reached a stage in our development with a global snacks and grocery businesses in North America in which each benefit from standing on their own and focusing on their unique drivers of success,” chairman and chief executive Irene Rosenfeld said during a conference call on Thursday.

Kraft said the deal would allow both companies to focus better on their priorities.

The grocery business will cater to traditional domestic retailers, with products such as Kraft Cheese and Maxwell House coffee, and has estimated revenue of US$16 billion.

The grocery business would still be one of the largest food and beverage companies in North America and the company said it would build on its leading market positions with some of the world’s most well-known grocery foods, such as Kraft Macaroni and Cheese, Oscar Mayer meats and Jell-O desserts.

Kraft’s snack business, twice the size with revenue of US$32 billion, will emphasize international growth — particularly in attractive emerging markets — with products such as Tang, Cadbury chocolate and Trident gum that are typically sold at quick-stop retailers.

The company has built up its snacks business over the years, helped in part by the acquisitions of LU biscuit from Groupe Danone SA and Cadbury PLC. The company said roughly 75 percent of the new snack business revenue comes from international sites and approximately 42 percent from emerging markets, where a growing middle class represents a major growth opportunity.

The deal is expected to take at least a year or more to complete as it works on the structure, management and other issues related to the tax-free spin-off. Taking that into account, the Northfield, Illinois, company’s current plan is for the split to be complete by the end of next year.

Kraft announced its plans to split the company at the same time that it reported that its second-quarter earnings climbed 4 percent to US$976 million, or US$0.55 per share, from US$937 million, or US$0.53 per share, a year ago. Revenue rose 13 percent to US$13.88 billion from US$12.25 billion.

The firm also boosted its full-year forecasts for revenue from existing businesses and operating earnings.

Kraft now anticipates so-called organic revenue to climb at least 5 percent, with operating earnings of at least US$2.25 per share.

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