Deal Overview
On July 24, 2023, Kellogg
K
The transaction is intended to result in tax-free distributions of WK Kellogg (Spin Off) shares to Kellogg Company shareholders, except for cash that shareholders may receive (if any) instead of fractional shares. Shareholders would receive shares on a pro-rata basis relative to their Kellogg holdings at the record date for the spin-off. The transactions will follow the satisfaction of customary conditions, including reviews and final approval by Kellogg’s Board of Directors, receipt of an Internal Revenue Service ruling and relevant tax opinions with respect to the tax free nature of the transactions, the effectiveness of appropriate filings with the U.S. Securities and Exchange Commission. Previously on August 24, 2022, the company had announced Gary Pilnick as CEO-designate and Dave McKinstray as CFO
CFO
Kellanova (RemainCo) and WK Kellogg Co (Spin-Off) will jointly host an investor event on August 8/9, at which time both companies will present their strategies, capital structures, capital allocation priorities, and financial outlooks. Moreover, Kellogg is expected to release its 2Q23 results on 8/3. On 7/28, the Company declared a dividend of $0.60 per share on the common stock of the Company, payable on 9/15, to shareowners of record at the close of business on 9/1.
Deal Rationale
Kellogg’s proposed separation is similar to the break-up of other large, diversified companies. The Board of Directors and management have continually explored opportunities to capitalize on consumer and market trends to transform Kellogg’s portfolio and increase long-term shareowner value. The transaction is expected to create value for the shareholders by unlocking their full standalone potential. It is worth noting that the current conglomerate business structure is weighing down on the company’s snacking business and attracting lesser valuation compared to its peers. The Company’s global snacking business (82% of FY22 revenue) could earn a higher valuation closer to its peer Mondelez International
MDLZ
Over the years, Kellogg has transformed its portfolio to enhance performance and increase long-term shareowner value, and this announcement is the next step in that transformation. In 2018, the Company announced a plan to shift its resources toward its highest-growth categories, like snacks. In 2019, Kellogg sold its cookie, pie crust, ice cream cone and fruit business to the Ferraro Group). The successful execution of these actions has expanded Kellogg’s portfolio, resulting in a scaled global snacking business and a significant emerging market presence, complemented by strong and profitable breakfast and plant-based foods businesses. After several years of transformation and improving results, the Company believes it is the right time to separate the businesses to pursue their differentiated strategic priorities.
The spin-offs will better position each business to unlock its full potential by creating independent public companies. As independent companies, both businesses will be better positioned to focus on their distinct strategic priorities, with financial targets that best fit their markets and opportunities and execute with increased agility and operational flexibility. The spinoff will enable more focused capital allocation and resources in a manner consistent with those strategic priorities, realizing improved outlooks for profitable growth, and shaping distinctive corporate cultures and rewarding career paths for employees of each company. Hence, each standalone company will have a greater strategic focus and operational flexibility and direct capital and resources toward unlocking growth, regaining category share and restoring and expanding profit margins. The shareholders will now be able to value each Company based on its distinct operational and financial characteristics and invest accordingly.
In case of WK Kellogg (Spin-Off), U.S. cereal sales have been waning for years as consumers moved to more portable products, like energy bars. They saw a brief spike during pandemic lockdowns when more people sat down for breakfast at home; however, sales fell again in 2021. As a standalone company, WK Kellogg (Spin-Off) will have a greater strategic focus and operational flexibility and will direct capital and resources toward unlocking growth, regaining category share, and restoring and expanding profit margins.
Company Description
Kellogg Company (K) (Parent)
Headquartered in Battle Creek, Michigan, Kellogg Company manufactures and sells snacks and convenience foods. The Company mainly operates in snacking, cereal, and plant-based foods businesses. Its segments include North America, Europe, Latin America and AMEA (Asia, Middle East, Africa). Its principal products are snacks, which include crackers, savory snacks, toaster pastries, cereal bars, granola bars and bites, and convenience foods, which include ready-to-eat cereals, frozen waffles, veggie foods and noodles. They are sold to retailers through direct sales forces for resale to consumers. The Company’s snacks brands are marketed under brands such as Kellogg’s, Cheez-It, Pringles, Austin, Parati and RXBAR. Its cereals and cereal bars are generally marketed under Kellogg’s name, with some under the Kashi and Bear Naked brands. The Company’s frozen foods are marketed under the Eggo and Morningstar
MORN
Post-Spin-off, Kellogg will change its name to Kellanova and continue to trade on the New York Stock Exchange under the ticker K. The Company will be a leading company in global snacking, international cereal and noodles, and North America frozen breakfast, with iconic, world-class brands and strong underlying growth momentum and profitability. Kellogg Company’s three international regions will remain almost entirely intact, becoming part of Kellanova with an estimated FY22 net sales of $12.6 billion. Nearly 60% of its net sales come from global snacks, participating in growing categories led by iconic, world-class brands, including Pringles, Cheez-It, Pop-Tarts, Kellogg’s Rice Krispies Treats, Nutri- Grain, and RXBAR, among others. Less than a quarter of its net sales come from cereal in international markets, featuring world-class brands such as Kellogg’s, Frosties / Zucaritas, Special K, Tresor / Krave, Coco-Pops, and Crunchy Nut, among others.
WK Kellogg Co. (Spin-Off)
Post Spin-Off, WK Kellogg (Spin-Off) will focus on ready-to-eat cereal in the U.S., Canada, and the Caribbean. It will be a cereal leader in the U.S., Canada, and the Caribbean, with beloved brands, a heritage of innovation, and more than a century of operational success. WK Kellogg Co. had estimated FY22 net sales of $2.7 billion. The business focuses on ready-to-eat cereal in the U.S., Canada, and the Caribbean. North America Cereal Co.’s portfolio comprises iconic, world-class brands such as Kellogg’s, Frosted Flakes, Froot Loops, Mini-Wheats, Special K, Raisin Bran, Rice Krispies, Corn Flakes, Kashi and Bear Naked.
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