All public companies have shareholders who for the most part are passive in the sense if you like the company, they hold onto the shares, if they do not like it, they can sell. At the Annual General Meeting of the company, most shareholders vote for management, but some do not. Those ones tend to very active in trying to have the shares move up or have a view of the company to do more in one area or another, often times the company could but they are not moving fast enough. Some of the active shareholders will look at a company and think if it was split up, would there be more value? Sometimes the market rewards conglomerates, sometimes the market does not; sometimes the market rewards debt free companies, sometimes the market rewards high debt companies.
In an article by Paveen Paramasivam and Deborah Mary Sophia of Reuters, the snack and cereal giant Kellogg, best known for the cereal it started in 1894, Corn Flakes is spitting the company into 3 companies. The 3 companies will be Breakfast cereals, snacks and plant based business. The snacks division includes brands such as Pringles, Cheez-it, and Pop-tarts brought in $11.4 billion in 2021, accounting for 80% of its total revenue.
Americans used to eat breakfast cereals, but over the past number of years, consumption for breakfast is down. More Americans rely on fast food chains and they are eating cereal for snacks. It is the reason why there is more sugary cereals – for snacks not breakfast.
CEO Steve Cahillane noted the 3 companies have significant stand-alone potential and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities.
The 3 companies are expected to be completed by the end of 2023.
Linking to dividend paying stocks, as companies get bigger and there is value in that, others will see more value in breaking up the conglomerate. All companies go through the balancing act to enhance shareholder returns.
There are more questions than answers, till the next time – to raising questions.