Kraft Heinz Co.

said Tuesday it plans to split into two separate companies, undoing a mega-deal ushered in a decade ago that turned the maker of Kraft Mac & Cheese into one of the largest packaged food sellers in the world.

Following the breakup, one company will sell Heinz ketchup, other iconic condiments and boxed meals that comprise its fastest-growing global brands with US$15.4 billion in annual sales. The other firm will include slower-growing grocery products, such as Oscar Mayer hot dogs and Lunchables, which currently generate revenue of US$10.4 billion.

Shares of Kraft Heinz fell as much as 5.5 per cent, their biggest drop since Feb. 12. The stock has dropped about 14 per cent this year, trailing a nine per cent gain in the S&P 500.

The goal of the split is to siphon off lagging grocery staples into a new entity expected to generate reliable cash flow, while giving the company’s top-performing sauces and spreads more room to run. Executives said they expect each business will benefit from more focused attention after the split, which will occur through a tax-free spinoff. The two companies’ names will be determined later.

“The complexity of our current structure makes it challenging to allocate capital effectively, prioritize initiatives and drive scale in our most promising areas,” said Miguel Patricio, Kraft Heinz’s chairman. “By separating into two companies, we can allocate the right level of attention and resources to unlock the potential of each brand.”

Food deals

The Kraft Heinz split follows similar breakups by other food and drink companies, including Kellogg, which broke into two firms in 2023, and Keurig Dr Pepper, which recently said it would undo a 2018 deal that brought together its coffee and beverage businesses.

The latest announcement unwinds a US$46 billion merger a decade ago that united two iconic brands. That deal, orchestrated by 3G Capital and

Warren Buffett

’s

Berkshire Hathaway Inc.

, forged an industry behemoth shortly before new forces began to reshape Americans’ shopping, including greater demand for healthier, less-processed foods, new weight-loss drugs and

rising inflation

that’s caused consumers to cut back.

“Scale by itself is not enough,” chief executive Carlos Abrams-Rivera said on a call with analysts Tuesday. The separation “allows us to make sure that we have that level of focus now as we go forward, and at the same time maintaining a level of scale that I think is important to compete in this marketplace.”

Abrams-Rivera, who noted he previously worked in the Oscar Mayer deli meat brand, will become CEO of the grocery company following the spinoff. Patricio said the board picked Abrams-Rivera for the role because of his prior experience.

At a time when many consumers are moving away from highly processed foods, Abrams-Rivera said in an interview Tuesday that the grocery company will continue to highlight its efforts to reduce sugar and sodium and emphasize the high protein levels of products such as Oscar Mayer deli meats.

“It will only give us opportunity to do further investments in capability, in resources to continue for us to evolve our portfolio into more wellness options for families,” he said.

The grocery entity will also house Kraft Singles cheese, Capri-Sun drinks and Maxwell House coffee, while the condiments company will include Philadelphia cream cheese. Kraft Heinz said the full divvying up of brands would be announced later.

Headquarters remain

Kraft Heinz said it didn’t plan to change the location of its headquarters in Pittsburgh and Chicago.

In May, Abrams-Rivera said Kraft Heinz was considering “potential strategic transactions,” without providing further details. He did make clear the company was prioritizing its best-performing brands, including Heinz ketchup and Kraft Mac & Cheese, with aims of becoming a “sauces and meals powerhouse.”

Kraft Heinz is working with a recruiting firm to find a CEO for the second company, currently dubbed the “global taste elevation company.”

The company said it expects the transaction to close by the second half of 2026, with the separation overseen by John Cahill, the board’s vice chair and previous CEO of Kraft Foods Group, Inc.

Kraft Heinz said both companies should maintain investment grade ratings, and that the company’s existing debt will largely be an obligation of the condiments company or refinanced.

The company said it expects to be able to mitigate “a substantial portion” of the roughly US$300 million of “dis-synergies” the split will create. Abrams-Rivera said he didn’t expect job cuts.

“This is not an exercise for us to do any kind of layoff,” he said in the interview.

Industry changes

Abrams-Rivera said the board didn’t discuss or contemplate the possibility of either new company being acquired by a private entity. However the company said in its prepared remarks that each of the new entities could pursue future

merger and acquisition

activities.

Kraft’s move extends the refashioning of the United States food industry at a time it’s under scrutiny from consumers and government regulators.

In 2023, the Kellogg Company spun off its cereal business as WK Kellogg Co. and its snacking brands, including Pringles and Cheez-It, into Kellanova. Both are now on track to be acquired by closely held companies, leading analysts to predict a similar fate for Kraft Heinz’s new units.

Mars Inc. announced it would buy Kellanova for nearly US$36 billion in August 2024, and in July Italian candymaker Ferrero International SA agreed to purchase WK Kellogg for an enterprise value of US$3.1 billion.

  • Kraft Heinz slams Trudeau for floating ketchup as trade target
  • Kraft Heinz Canada president sees grocery code of conduct helping to stabilize prices

Food companies are also in the crosshairs of Health and Human Services Secretary Robert F. Kennedy Jr., who has urged Americans to consume less ultra-processed food and has pressed producers to stop using artificial dyes.

Bloomberg.com