The spin-off, which is scheduled to be completed in the second half of 2026, is the latest in a series of restructurings among major global consumer brands that once embraced the conglomerate model but are now rethinking their business structures amid weak sales, low valuations and tariffs. Wall Street had been expecting a split after the company said in May it would seek ways to boost shareholder value. Investors reacted negatively, however, with Kraft Heinz shares falling 5% in morning trading, leading a broader market decline.
The 2015 merger, which Warren Buffett helped orchestrate through Berkshire Hathaway with Brazilian investment firm 3G Capital, was aimed at cutting costs and growing iconic brands like Heinz, Jell-O and Philadelphia cream cheese. But it fell short of expectations, with the stock losing about 60% of its value as consumers began to cut back on spending, especially in the wake of the COVID-19 pandemic.
Buffett admitted in an interview with CNBC on Tuesday that he was “disappointed” by the split. He said the merger wasn’t a brilliant idea, but breaking up the company wouldn’t solve its problems either.
Last month, Berkshire wrote down $3.76 billion on its 27.4% stake in the company.
“The complex structure of our company makes it difficult to effectively allocate capital, prioritize and scale in the most promising areas,” said Miguel Patricio, executive chairman of Kraft Heinz.
The company reported a $9.3 billion impairment charge in the second quarter due to a prolonged decline in its share price and market capitalization.
“For investors, this move could unlock value in the short term, but the risks of implementation are clear: if both companies do not invest in innovation and do not defend against the onslaught of private brands, the separation may only provide a temporary financial effect,” said Emarketer analyst Suzy Davidhanian. According to Patricio, the separation will help “allocate the necessary level of attention and resources to unlock the potential of each brand.”
The split will create one company focused on sauces and spreads, including Heinz, Philadelphia and Kraft Mac & Cheese, with sales of about $15.4 billion in 2024. The other will combine processed foods and ready-to-eat meals, including the Oscar Mayer and Lunchables brands, with annual sales of about $10.4 billion.
The food division will be led by current Kraft Heinz chairman Carlos Abrams-Rivera, while the company is looking for a candidate for the position of CEO for the sauces division.
“The benefit of the split is that it will bring clarity and allow investors to invest in the direction they want,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. “Some people want a more stable company with a high dividend yield, which is a grocery company. And those looking for growth will choose a sauce company. So it makes sense.”
The company expects the separation costs to reach $300 million, but expects to quickly reduce a significant portion of them.
Last week, American soft drink giant Keurig Dr Pepper announced the purchase of JDE Peet’s for $18 billion, which will result in the separation of the combined business into two separate public companies: coffee and other beverage businesses.
Source: Reuters