Business, Economics and Jobs

Kraft Foods will split into two companies by 2012


Kraft Foods is set to split into two different companies by 2012.


Nicolas Maeterlinck

Find somewhere else to dunk that cookie: The same company won’t be making Oreos and Maxwell House coffee for very much longer.

On Thursday, Kraft Foods Inc. CEO Irene B. Rosenfeld announced that the Northfield, Ill.-based company will split into two publicly-traded companies by 2012.

One company will focus on global snacks, manufacturing brands like Oreo LU biscuits, Trident gum, Jacobs coffee, Tang, and Cadbury and Milka chocolates, the Associated Press reports. Kraft estimated that this business will bring in $32 billion a year selling the products to “instant consumption” retailers like convenience stores. About 42 percent of revenues would come from developing markets alone.

The second company will focus on the North American grocery business, cooking up products like Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Jell-O desserts and Miracle Whip salad dressing. Kraft estimated that annual revenues for this company will be about $16 billion.

The rationale for the split, according to the New York Times’ Dealbook:

By cleaving itself in two, the company is essentially letting shareholders choose between the fast-growing snacks business or the grocery business, which generates a lot of cash and enjoys strong profit margins despite its lower growth.

Dividing the two will also allow each business to pursue its own investment strategy. That could mean the grocery spinoff seeking out more brands from which it could reap cost savings, while the snacks business could continue its push into new markets.

Kraft’s split is the latest break-up in what’s turning into a trend of companies choosing to split apart in order to increase their market value, the Financial Times noted. Oil company Conoco-Phillips divided its downstream refining operations from exploration and production, and Sara Lee, Fortune Brands and ITT have split in recent months.