Kraft Heinz Plans Major Split Amid 60% Stock Decline

Kraft Heinz, the food giant created by a merger between Kraft and Heinz in 2015, is planning a significant restructuring. The company aims to separate its faster-growing condiment business from its traditional packaged food business. This move comes after years of struggling to meet investor expectations and adapt to changing consumer preferences.

The proposed split would create two independent entities. The first would focus on condiments and sauces, including iconic brands like Heinz Tomato Ketchup and Grey Poupon Mustard. These products have shown stronger growth compared to traditional processed meats and cheeses. The second entity would encompass the majority of Kraft Heinz's grocery business, including brands like Kraft and Oscar Mayer.

The decision to split the company marks a dramatic reversal of the 2015 merger, which was initially hailed as a savior for the U.S. packaged food industry. However, the merger has since been plagued by challenges, including rising costs, declining sales, and a significant decrease in market value. The company's stock price has fallen by over 60% since the merger, and its market capitalization has evaporated by approximately 570 billion.

The restructuring plan is part of a broader strategy to focus on higher-growth categories and shed underperforming assets. The company has been actively managing its portfolio in recent years, attempting to sell brands like Oscar Mayer and Maxwell House, although these efforts have not been successful. The recent announcement to remove artificial colors from its U.S. products and sell its Italian baby and specialty food business further underscores this strategy.

The proposed split is seen as a bold move to reshape the company and adapt to a changing food consumption market. By separating its business units, Kraft Heinz hopes to provide investors with a clearer view of each entity's value and prospects, ultimately driving overall market value. However, the company is still determining which specific brands will be included in the split.

The food industry is facing significant challenges, including stricter government regulations on processed foods, the rise of weight-loss drugs, and reduced food stamp programs. Consumers are increasingly preferring fresher, less processed foods, which has put pressure on traditional packaged food companies. Kraft Heinz's restructuring plan is a response to these challenges and an effort to position the company for future growth.

The company's stockholder structure has also undergone changes that may have paved the way for this strategic shift. By the end of 2023, 3G Capital had completely exited its stake in Kraft Heinz. Although Berkshire Hathaway remains the largest shareholder with approximately 28% of the shares, it has announced that it will no longer hold a seat on the company's board. This move has been interpreted by many industry observers as a signal that the company is poised for significant changes.