Kraft Heinz Plans Business Split Amid 60% Stock Plunge

Kraft Heinz Company, a conglomerate of iconic brands, is reportedly planning to split its business units, marking a significant shift for the company and a rare setback for the renowned investor who backed its formation. The news comes as a stark contrast to the initial enthusiasm when the merger of Kraft and Heinz was supported in 2015, describing it as an opportunity to bring together legendary brands.

Since the merger, Kraft Heinz's stock price has plummeted by over 60%, while the broader market has seen substantial gains. The holding company holds approximately 27% of Kraft Heinz's shares, which have lost about 45 billion dollars in market value compared to their book value. If the holding company were to exit now, the losses would be even more substantial.

For the 94-year-old investor, this investment represents one of his few missteps. The investor is set to step down as the holding company's CEO by the end of this year, concluding a 60-year career marked by successful investments in well-known brands. Despite steady dividend income and profits from acquiring Heinz before the merger with Kraft, the holding company's overall performance would have been even better if the investment in Kraft Heinz had been redirected to the broader market, potentially yielding an additional 10 billion dollars.

Industry analysts suggest that the investor may not have anticipated the market's shift towards healthier food options. Kraft Heinz, a major player in the processed food sector, has faced challenges due to inflation and declining demand for packaged foods, partly driven by the popularity of weight-loss medications. The company is reportedly considering splitting its business units to form new entities, a move that could potentially revitalize its performance.

The investor has previously acknowledged that the investment in Kraft was not the best decision. In 2019, when Kraft Heinz wrote down the value of some of its well-known brands by 15.4 billion dollars, the investor admitted that the acquisition price was too high. However, the holding company has managed to profit from the investment through dividends from Heinz's preferred stock and the redemption of these shares in 2016, earning tens of billions of dollars in the process. The ordinary stock investment in Kraft Heinz has also generated over 6 billion dollars in dividends.

In recent years, the holding company has gradually reduced its stake in Kraft Heinz. Earlier this year, Kraft Heinz announced that two board members associated with the holding company would be stepping down, stating that this was not due to disagreements over the company's operations, policies, or practices.

The holding company still holds a significant amount of Kraft Heinz's shares. If the proposed split can boost the company's returns, the investor may see additional gains. Prior to the announcement of the potential split, Kraft Heinz's stock price had risen by nearly 5% by the close of trading on Thursday.

Analysts believe that the split could improve the performance of this investment. Honestly, its performance has not been ideal so far.