Kellogg’s ($K) to split into three companies

Kellogg Company is the world's leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles and meat alternatives. Some of their most popular brands are well known brands such as Pringles, Rice Krispies, Froot Loops, Cheez-It etc.

Currently, all these businesses are under one major corporation. However, last Tuesday, the leadership has decided it is better to split the company into three independent entities: Snacks, cereal and plant-based foods.

The so-called “spin-off” should be completed by the end of 2023.

What is a spin-off?

It is nothing more than a tax friendly way to split up a company. Because you essentially did not sell any shares, you don't have to pay capital gains tax after the spin-off is completed.

But why would Kellogg's decide to do this?

The cereal business (which has been their main growth driver) is slowing down mainly because consumers have so many options now. Think about it, do you still eat cereal as often as you did as a child? Naturally, Kellogg’s has to make some changes or it will become obsolete.

Smaller companies can adapt to the changing market environment much faster than large corporations can, which makes this a strategic decision. CEO Steve Cahillane said all three businesses have “significant” standalone potential, although the company is exploring alternatives including a potential sale for its plant-based business.

If you already own Kellogg's shares, this is what will happen (important also for any stock split!)

Via your broker, you will be notified that a spin-off is announced. Because you are also a shareholder you're entitled to a piece of the newly formed companies. Therefore, one morning, your portfolio will show three positions instead of one. Of course, the value of your Kellogg's shares will decrease but you will get stakes in two other companies. It is all automated so you have nothing to worry about.

The only thing I would check is the tax situation in your country. Not every country regards capital gains the same way so it would be best to check with a specialist how the spin-off would be treated (just in case).

To Your Financial Freedom,
Vittorio