Kraft to split into a global snacks company and a North American grocery business

Kraft Foods has announced that its intends to create two independent public companies: a high-growth global snacks business with estimated revenue of approximately $32 billion and a high-margin North American grocery business with estimated revenue of approximately $16 billion. The company expects to create these companies through a tax-free spin-off of the North American grocery business to Kraft Foods shareholders.

Global snacks will consist of the current Kraft Foods Europe and Developing Markets units as well as the North American snacks and confectionery businesses. As an independent company, global snacks would have estimated revenues of approximately $32 billion and a strong growth profile across numerous fast-growing, attractive markets. Approximately 75% of revenues would be from snacks around the world and approximately 42% would come from developing markets, including a diversified presence in numerous highly attractive emerging markets. The business would have a strong presence in the fast-growing and high-margin instant consumption channel. The non-snacks portion of the portfolio would consist primarily of powdered beverages and coffee, which have a strong growth and margin profile in developing markets and Europe. Key brands would include Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee and Tang powdered beverages.

The North American grocery business would consist of the current US beverages, cheese, convenient meals and grocery segments and the non-snack categories in Canada and food service. With approximately $16 billion in estimated revenue, this business would be one of the largest food and beverage companies in North America.

Management is developing detailed plans for the Board's further consideration and final approval. To execute the transaction requires further work on structure, management, governance and other matters, which will take approximately 12 or more months. The current target is to launch the new companies before year-end 2012. The company will provide interim updates as appropriate. Throughout the process, management will remain focused on continuing to realise the benefits of the Cadbury integration and delivering strong business results.

Any transaction would be subject to customary conditions, including receipt of regulatory approvals, an opinion from tax counsel and a favourable ruling from the Internal Revenue Service to ensure the tax-free status of the spin-off of the North American grocery business to the shareholders, execution of inter-company agreements, further due diligence as appropriate and final approval by the company's Board of Directors.

Over the last several years, Kraft Foods has transformed its portfolio by expanding geographically and by building its presence in the fast-growing snacking category. A series of strategic acquisitions, notably of LU biscuit from Danone and of Cadbury Plc, together with the strong organic growth of its Power Brands, have made Kraft Foods the world's leading snacks company. At the same time, the company has continued to invest in product quality, marketing and innovation behind its iconic North American brands, while implementing a series of cost management initiatives. As a result, the company has delivered strong results in very challenging economic conditions.

Having successfully executed its transformation plan, and 18 months into the Cadbury integration, the company has, in fact, built a global snacking platform and a North American grocery business that now differ in their future strategic priorities, growth profiles and operational focus. For example, Kraft Foods' snacks business is focused largely on capitalising on global consumer snacking trends, building its strength in fast-growing developing markets and in instant consumption channels; the North American grocery business is investing to grow revenue in line with its categories in traditional grocery.