Kraft Heinz halts plans to split company
CBC
Kraft Heinz has halted efforts to split the company, in a surprise move that new CEO Steve Cahillane said was necessary due to deteriorating conditions in the food industry, though he called the challenges "fixable and within our control."
The packaged-foods maker announced plans in September to split into two — with one company focused on groceries and the other on sauces and spreads — after failing to achieve the kind of growth expected when the firm was formed a decade ago, under a merger orchestrated by Warren Buffett's Berkshire Hathaway and 3G Capital.
Kraft Heinz has since lost out to rivals, with Cahillane saying a recent spate of price hikes alienated consumers who were already straying from its brands in favour of healthier alternatives at a lower cost.
"We busted through four or five levels of price points in a very accelerated fashion and the consumer was left very disappointed in that," Cahillane said on a post-earnings call.
Shares were little changed on Wednesday after earlier falling about five per cent.
"Faced with the choice of continuing the separation and all the work that's required there or shifting all resources against growing the business and the early opportunities that I saw, it became very compelling that we ought to pause the separation," Cahillane told Reuters in an interview.
While he did not rule out the possibility of a split in the future, Cahillane said there was no end date for the pause, which is expected to save the company $300 million US in costs in 2026.
Kraft Heinz had expected to close the spinoff at the end of 2026 and brought on industry veteran and former Kellogg boss Cahillane in January to guide it through the split.
"The company's decision to table/postpone separation plans and instead accelerate reinvestment reveals deeper problems than previously acknowledged by the company," said Steve Powers, analyst at Deutsche Bank.
Kraft Heinz is among the few companies to reverse a major breakup, as only about one in 10 corporate spinoffs are cancelled on average, according to a 2022 report by KPMG.
In January, Kraft Heinz's shares tumbled after it disclosed that Berkshire Hathaway may sell its 27.5 per cent stake in the company and exit a more than decade-old investment that did not work out for Buffett.
Buffett told CNBC at the time of the announcement of the split that he and Greg Abel, then a Berkshire vice-chair and now its chief executive, disapproved of the split.
"We support CEO Steve Cahillane and the Kraft Heinz board of directors' decision, under Steve's new leadership, to pause work on the company's previously planned separation," Berkshire Hathaway's CEO Greg Abel said in a statement on Wednesday.
"As a result, management can commit to strengthening Kraft Heinz's ability to compete and serve customers."
