What you need to know about the Kellogg three-way split

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By :  ,  Financial Writer

Kellogg Company, a leading food and beverage company, announced on June 21, 2022, that it will be separating out its North American cereal and plant-based businesses via tax-free spin-offs. Kellogg has stated in a press release that the two new, independent public companies will each be better positioned to unlock their full potential as standalone establishments while the remaining snacking foods division will flourish as an independent company.

The names of the three new companies will officially be announced at a later date, and for now are referred to with the placeholders: North American Cereal Co., Plant Co. and Global Snacking Co. Kellogg has stated it expects to “maintain a strong aggregate dividend and return-return-on-capital profile across the three businesses.”

Read on to learn more about the demerger or use the links below to jump straight to a specific unit.

North American Cereal Co.

Plant Co.

Global Snacking Co.

Kellogg’s split date

The Kellogg Company has not released an exact date for when the new companies will launch, but the company has stated it expects the separation of its cereal and plant-based divisions to be finished by the end of 2023 once approved by the board of directors and confirmation from the Internal Revenue Service.

In addition to the names of the new companies having yet to be announced, the capital structure and governance of the three companies are so far undecided. Management teams are expected to be announced by the first quarter of 2023.

What does the Kellogg split mean for shareholders?

Kellogg shareholders can expect to receive shares in the two spinoff companies, North American Cereal Co. and Plant Co., relative to their holdings in Kellogg stock at the date of the spinoff.

The split will be tax-free and new shares will be distributed on a pro-rata basis relative to stockholders’ holdings at the record date.

Kellogg executives have stated they believe the spinoffs will provide greater value for shareholders of all three companies as each line will be able to focus on enhancing resource allocation for its specific products and boost revenue in the long run.

Shareholders should consider if they want to up their investment before the split or make a larger play in one of the new companies by considering the potential of each. Below, we go into detail about each new company and the pros and cons they’ll face post-split.

Markets initially responded positively to the news, rising 8%, but dropped back to 2% at the close.

What is North American Cereal Co.?

North American Cereal Co. will be one of two companies splitting from Kellogg and will focus on Kellogg’s cereal brands including Rice Krispies, Froot Loops, Frosted Flakes and Special K cereal. The company’s near-term challenges include regaining lost market share and recovering from supply chain disruptions following a fire in one of its plants and a lengthy worker strike.

How much will North American Cereal Co. be worth?

The estimated worth of Kellogg’s cereal division is unknown, but the North American cereal unit’s net sales were around $2.4 billion in 2021. Executives at Kellogg have stated future goals for the unit involve maintaining this revenue stream while improving profit margins.

Will North American Cereal Co. be a good investment?

Consumer staples are typically considered a defensive stock due to their low volatility, but supply chain issues and the hyper-specificity of cereal being the new company’s only product offering chips away at the stock’s safety.

Kellogg’s cereal brands have slipped in profits as on-the-go breakfasts become more popular. The company split will allow its cereal brands to no longer compete for resources with more successful products amid already tough supply-chain issues.

While the split allows Kellogg’s more successful brands to not be pulled down by its North American cereal division, it also means that executives appointed to this new company can now focus on these brands which might have previously fallen through the cracks.

What is Plant Co.?

Plant Co. will feature Kellogg’s plant-based division, whose most prominent brand is Morningstar Farms. Products of Morningstar Farms include meatless chicken nuggets, corn dogs, burgers, hot dogs, and pizza snacks with vegan cheese.

How much will Plant Co. be worth?

It is unknown exactly how much Plant Co. is expected to be worth, but the division reported $340 million in net sales last year and an EBITDA of $50 million.

Will Plant Co. be a good investment?

Despite a decline in the plant-based food sector, Kellogg’s products have seen success, especially compared to rival brands like Beyond Meat, which has reported negative earnings for the past three years.

Kellogg has stated in the past it is open to selling off Plant Co. If an acquisition were to occur in the future, investors might benefit from a robust purchase premium. Whether or not an acquisition occurs, Plant Co. is still likely to trade at a higher multiple as a new “pure-play” in the growing plant-based foods sector once it’s moved out from the shadow of Kellogg’s traditional business.

What is Global Snacking Co.?

Global Snacking Co. will maintain all other Kellogg’s brands not covered in North American Cereal Co. and Plant Co. such as international cereal, frozen breakfast foods, noodles and popular snack brands such as Pringles, Cheez-It and Eggo.

How much will Global Snacking Co. be worth?

Kellogg’s global snacks division received $11.4 billion in revenue in 2021, about 60% of Kellogg’s net revenue and 80% of net sales.

Will Global Snacking Co. be a good investment?

Kellogg’s Global Snacking Co. is the company that stands to benefit the most immediately from the split. Kellogg’s CEO Steve Cahillane has stated Global Snacking Co. is expected to be “a high-single-digit growth company,” with the opportunity for organic expansion and growth through acquisitions.

How to trade Kellogg Co. shares with City Index

You can speculate on whether Kellogg shares will rise or fall in the run-up to the demerger with FOREX.com in just four easy steps:

1.           Open a FOREX.com account, or log in if you’re already a customer

2.           Search for “Kellogg Co.’ in our award-winning platform

3.           Choose your position and size, and your stop and limit levels

4.           Place the trade

Once Kellogg has split, you’ll be able to trade shares of all three companies in the same way.

Alternatively, you can try out share trading risk-free by signing up for our demo trading account.

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