Kraft Heinz (KHC.O) is making a last-ditch effort to increase returns by reversing its unsuccessful decade-old merger by opening a new tab that could result in the spinoff of slower-growing brands, such as Velveeta cheese.

On July 11, a source confirmed a report in the Wall Street Journal, stating that the Chicago- and Pittsburgh-based food manufacturer is investigating the possibility of separating a significant portion of its grocery business, which includes numerous Kraft products, into a new entity.

That entity could be valued at up to $20 billion on its own, rendering it the most significant consumer goods transaction of the year thus far.

The company declined to provide a response regarding the relocation.

Kraft and H.J. have caused approximately two-thirds of the value of the food manufacturer’s shares to plummet.
In 2015, Heinz and Berkshire Hathaway (BRKa.N) entered into a merger that was intended to reduce costs and expand the brands internationally.

However, consumers in the United States have been spending less on name-brand packaged food that is becoming more expensive as a result of the pandemic.

Furthermore, Kraft Heinz’s convenience-oriented products, such as its Lunchables meal package, are currently under scrutiny in the United States, its largest market, due to the emergence of the Make America Healthy Again (MAHA) social movement, which is spearheaded by U.S. citizens.

In May, the $33.3 billion market-cap company announced that it was “assessing potential strategic transactions to unlock shareholder value.”

This announcement was made in response to the departure of executives from Berkshire Hathaway from its board, who are believed to have lost faith in the food manufacturer.

The most significant spin transactions executed by consumer products companies.

Kraft Heinz has yet to affirm the potential move, which would presumably rescind the approximately $45 billion 2015 merger. However, the specifics of how the company’s approximately 200 brands would be divided remain unclear.

Analysts also stated that investors would only realize the greatest value if acquirers acquire either of the new companies, rendering it an uncertain proposition.

Kraft Heinz’s condiments division, which is headed by Philadelphia cream cheese and the ketchup brand Heinz, generated $11.4 billion in sales last year and has potential for international expansion.

Analysts and financiers have stated that it would likely be valued at a higher multiple than the current market value of the company if it were traded independently, potentially increasing its value.

The remaining Kraft Heinz products, which generate sales of $14.5 billion from legacy brands like Oscar Mayer, which are subject to competition from more affordable private-label alternatives, would likely be valued in accordance with the company as a whole, which is currently trading at just under nine times its earnings.

A request for comment was not promptly responded to by Kraft Heinz.

Analysts and investment financiers contend that this course of action is perilous due to the fact that the separation itself may generate only a negligible advantage for investors.

If Kraft Heinz is able to secure a buyer and a premium for either of its two businesses, it will generate greater returns.
Peter Galbo, an analyst at Bank of America, stated, “It appears that there is not a significant amount of potential for growth.” “It is truly contingent upon an acquisition in the future.”

Investment financiers speculated that Kraft Heinz’s board and management may have viewed the Kellogg Co’s dissolution as a success story that they could emulate.

Ferrero, a European confectionery manufacturer, has reached an agreement to acquire Kellogg Co’s cereal division, WK Kellogg (KLG.N), for $3.1 billion earlier this month.

Mars acquired Kellogg Co’s other division, Kellanova (K.N), which manufactures Pringles, for approximately $36 billion last year.
Investment financiers have suggested that the condiments business could be acquired by one of the following: Unilever (ULVR.L), Nestle (NESN.S), or McCormick Co (MKC.N), a manufacturer of spice and spicy sauce.

McCormick declined to provide an explanation. Requests for comment were not responded to by Unilever or Nestle.
Dave Wagner, a portfolio manager at Aptus Capital, which holds Kraft Heinz shares in an exchange-traded fund, suggested that the slower-growing Kraft-oriented business could attract interest from another company that is interested in bolstering its influence with grocers such as Walmart (WMT.N) and Kroger (KR.N)

However, Wagner stated that it may be difficult to locate customers in a segment that is experiencing challenges.
The company’s sales and profit forecasts for the remainder of the year were reduced, and sales across the complete food manufacturer decreased by 3% in 2024.

“Both options will result in some form of negative publicity,” Wagner stated. “It is unlikely that they would be considered tier one acquisition targets.”