Is there more to the spin-off of Kellogg’s US cereal business than meets the eye?

This week Kellogg revealed the new corporate names for its soon to be split snacks business – Kellanova, and the legacy North American cereal business – WK Kellogg company.

Kellogg has been in a world of pain for some time. The root cause has been breakfast, simply put people aren’t spending the time on breakfast they once did, especially in North America, which has slowed growth in cereals.

Photo: Ivan Timov

Last year Kellogg announced plans to split itself into 3 separate legal entities, a global snacking and non-North American cereals business, a North American cereals business, and a third business, Morningstar farms that sells plant foods.

The heavy hitter in the three is the global snacking business, Kellanova (brands like Pringles, Cheez- its) with revenue over $11b.

Officially the reason for the de-merger is that the North American cereals business competed against global snacking for capital, restraining growth in snacking.

Although we learnt the new Corporate names of these entities, we also learnt the Kellogg name won’t be disappearing from either company, nor crucially any of the brands. Kellanova will own the Kellogg brand and WK Kellogg will licence it.

WK Kellogg

I assume that means Kellanova and WK Kellogg will be appearing in small text on the back of pack only.

So why the demerger? Personally I’m struggling with the logic, at least the commercial logic. 

Besides the consumer facing branding, what happens to shared resources like the Sales organisation in North America. Are there now to be two separate sales teams in Kellanova and WK Kellogg? Likewise for purchasing, many of the ingredients between the two businesses are common: grains, sugars, fats, flexible packaging and cardboard. 

There may be a financial benefit, perhaps investors will appreciate better Kellanova’s intrinsic value, boosting the stock price?

More likely Kellogg management feared being prodded by an activist investor like Nelson Peltz.

However there is also a financial risk. The legacy North American cereal business may fall prey to private equity or worse a strategic competitor. PepsiCo’s Quaker Oats perhaps?

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