New York (Reuters) – The possible split of the slower growth brands of Kraft Heinz, like Velveeta cheese, is a last -minute attempt to increase the company’s returns, reversing its unsuccessful fusion of a decade.
The Chicago and Pittsburgh -based food manufacturer is studying the possibility of cinding much of its food business, including many Kraft products, in a new entity, a source said on July 11, confirming a report by the Wall Street Journal. This entity could be valued at up to $ 20 billion, which would make it the biggest business in consumer goods so far this year.
The company declined to comment on the measure.
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Food manufacturer’s shares have lost about two -thirds of their value since Kraft and HJ Heinz merged in 2015 in an agreement supported by Warren Buffett Berkshire Hathaway, which aimed to cut costs and expand brands internationally.
However, US consumers have spent less on food packed with famous, increasingly expensive brands after pandemic.
In addition, Kraft Heinz’s practical products, such as his Lunchable Meal Kit, face criticism in the United States, their largest market, amid the rise of the Make America Healthy Again movement (Make America Healthy again) or Maha, led by US Health Secretary Robert F. Kennedy Jr.
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The company, with market capitalization of US $ 33.3 billion, said in May that it was “evaluating potential strategic transactions to release value to shareholders,” as Berkshire Hathaway executives left their advice, probably after losing their faith in the food manufacturer, bankers said.
The possible change, still being confirmed by Kraft Heinz, would probably undo the merger of approximately $ 45 billion in 2015, although the details of how the company’s 200 brands would be divided are not clear.
Kraft Heinz’s Condiments Division, led by the ketchup brand Heinz and Cream Cheese Philadelphia, recorded $ 11.4 billion in sales last year and has room to grow internationally.
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In isolation, it would probably have a higher multiple than the company’s current trading value as a whole, which would make it more valuable, analysts and bankers said.
The rest of Kraft Heinz products – with sales of $ 14.5 billion of traditional brands such as Oscar Mayer, which face competition from cheaper own brands options – would probably be valued in line with the entire company, which is currently traded just less than nine times their profits.
Kraft Heinz did not immediately return a comment request.
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Risky path
This path is risky because separation itself can create only a small benefit for investors, according to investment analysts and bankers.
Largest returns depend on Kraft Heinz eventually find a buyer – and a prize – for either business.
“There doesn’t seem to be much growth potential,” said Peter Galbo, an analyst at Bank of America. “It really depends on a future acquisition.”
Kraft Heinz’s advice and management may have seen Kellogg CO dissolution as a success story they could replicate, investment bankers said.
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Earlier this month, European Sweet Manufacturer Ferrero agreed to acquire Kellogg Co.’s cereal business, WK Kellogg, for $ 3.1 billion. Last year, Mars acquired another Kellogg Co. business, Pringles manufacturer Kellanova for about $ 36 billion.
Possible purchasers of the Condiments Business can be the spice manufacturer and spices and sauces McCormick Co., Unilever or Nestlé, they said investment bankers. McCormick declined to comment. Unilever and Nestlé did not respond to requests for comment.
The slower, Kraft -oriented business business can, however, attract the interest of another company that wishes to increase its influence with supermarkets such as Walmart and Kroger, said Dave Wagner, a portfolio manager of Aptu Capital, which holds Kraft Heinz shares on a trade -traded fund.
But Wagner said finding buyers in a challenging segment may not be easy.
Sales from the entire food manufacturer fell 3% by 2024, and the company reduced its sales and profit forecasts for the rest of this year.
“If you keep the company as it is now or divided, both will have some kind of damage,” said Wagner.
“They would probably not be targets of first -class acquisition.”
