Kellogg to spin off into three new units with similar leverage ratios

By Devika Patel

Knoxville, Tenn., June 22 – Kellogg Co. plans to keep its main business, which will offer global snacking, international cereal and noodles and North America frozen breakfast, investment-grade following a planned separation of the company into three independent companies.

The company plans to spin off its U.S., Canadian, and Caribbean cereal and plant-based businesses, which collectively represented approximately 20% of its net sales in 2021.

The three new businesses will have similar leverage ratios and will maintain Kellogg’s dividend, which will be split between the three companies, management said.

Global Snacking Co., which had about $11.4 billion in net sales last year, will offer global snacking, international cereal and noodles and North America frozen breakfast.

North America Cereal Co., which had about $2.4 billion in net sales last year, will be a cereal company in the U.S., Canada and Caribbean.

Plant Co., which had about $340 million in net sales last year, will be a plant-based foods company, anchored by the MorningStar Farms brand.

“We are committed to maintaining an investment-grade rating for Global Snacking Co. after the separations, and we will ensure the spinoff companies are equipped with solid balance sheets and return on capital profiles,” senior vice president and chief financial officer Amit Banati said on the company’s conference call announcing the transformation on Tuesday.

“We expect to maintain our strong dividend in the aggregate, and we will determine later how it splits across the three businesses.

“You should expect very similar leverage ratios [for the three businesses],” Banati said.

Management explained that the spinoffs will give each business further financial and operational flexibility, ensuring more growth.

“Each of the three companies is from day one a scaled business with strong brands and category shares, a solid supply chain and financial flexibility,” chairman and chief executive officer Steven Cahillane said on the call.

“As independent companies, all three will be better positioned to focus on their distinct strategic priorities with financial targets that best fit their own markets and opportunities and execute with increased agility and operational flexibility, enabling more focused allocation of capital and resources in a manner consistent with those strategic priorities.

“[The separated businesses will be better equipped to] realize improved outlooks for profitable growth and shape distinctive corporate cultures,” Cahillane said.

The spinoffs are expected to settle in late 2023.

“The proposed spinoffs are intended to result in tax-free distributions of North American Cereal Co. and Plant Co. shares to Kellogg Co.’s shareowners,” Banati said.

“Shareowners would receive shares in the two spinoff entities on a pro rata basis relative to their Kellogg holdings at the record date for each spinoff.

“We expect the North America Cereal Co. spinoff may precede that of Plant Co., with both currently targeted to be completed by the end of 2023,” Banati said.

The Battle Creek, Mich.-based company manufactures cereal and convenience foods.

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