Kraft Heinz to Split into Two Public Companies, Reversing 2015 Merger
The food giant plans to create a global condiments business and a North American grocery unit in a bid to unlock shareholder value and accelerate growth.
Kraft Heinz (KHC) has announced a significant strategic pivot, unveiling plans to separate into two independent, publicly traded companies. The move effectively reverses the high-profile 2015 merger of Kraft and Heinz, which was engineered by Berkshire Hathaway and 3G Capital. The tax-free spin-off, expected to be completed in the second half of 2026, will create two distinct entities: a 'Global Taste Elevation Co.' and a 'North American Grocery Co.'
The Global Taste Elevation business will house the company's faster-growing brands with international appeal, including the iconic Heinz ketchup, Philadelphia cream cheese, and Kraft Mac & Cheese. This entity will focus on condiments, sauces, and shelf-stable meals. The second company, North American Grocery Co., will manage a portfolio of established brands primarily sold in the U.S. and Canada, such as Oscar Mayer meats, Kraft Singles, and Lunchables, aiming to operate as a stable cash-flow business.
In , the company stated the separation is designed to allow each business to pursue tailored strategies, deploy resources more effectively, and ultimately accelerate profitable growth. The logic is to create two more focused companies that can react more nimbly to changing consumer tastes and market dynamics.
However, the plan has been met with a mixed reception on Wall Street. Some analysts see the potential for value creation. Morgan Stanley upgraded the stock to 'Equalweight,' citing a more reasonable valuation as the company moves toward the split. Analysts at TD Cowen noted that the move reflects a broader industry trend where mega-mergers in the food sector have often failed to deliver, suggesting that more focused portfolios have a better track record. The hope is that the Global Taste Elevation Co. could command a higher valuation multiple due to its growth prospects, as detailed by .
Conversely, there is significant skepticism. Warren Buffett, a key figure in the original merger, has publicly expressed disappointment with the decision. This sentiment weighed on the stock, which saw a notable drop after the news broke. Reflecting this concern, several firms, including Wells Fargo and UBS, lowered their price targets on KHC shares. Furthermore, for a potential downgrade, highlighting uncertainty around the financial profiles of the two new entities. Critics argue that the split may not solve the fundamental challenges the company faces, such as declining organic sales and a consumer shift away from processed foods.