Kraft Heinz aggressively pursued growth. They now hope a corporate separation will revive their ailing enterprise.

Kraft Heinz Announces Split into Two New Companies

In a significant move, food conglomerate Kraft Heinz has announced its split into two new, as-yet-unnamed companies. This decision comes after years of weak sales and falling share prices for the company.

The first of the new companies, named "Global Taste Elevation Co.", will focus on sauces and spreads globally. On the other hand, "North American Grocery Co." will concentrate on North American grocery products.

The split is a reversal of the pitch Kraft Heinz made 10 years ago when it merged to create a mega-conglomerate. One of the new companies will focus on faster-growing businesses such as Heinz Ketchup and Philadelphia cream cheese, while the other will take on struggling products like Lunchables, Capri Sun, and Kraft Singles.

Kraft Heinz shares fell 7% Tuesday in response to the announcement of the split. The stock has fallen nearly 70% since the merger. The company's leadership believes it will be worth more to investors as two separate entities.

However, not everyone is convinced. Melissa A. Schilling, a professor at NYU Stern School of Business, questions whether the mega-conglomerate model is as beneficial as it's often perceived. Warren Buffett, who was involved in merging the two companies, has expressed doubts about the split fixing Kraft Heinz's problems.

The breakup of Kraft Heinz follows a trend of corporate restructuring. Other conglomerates like Keurig Dr Pepper and Warner Bros. Discovery are also planning splits. In a low-interest rate environment, mergers and acquisitions might be common, but in a high-interest-rate environment like the 2020s, breakups are trending.

Meanwhile, PepsiCo is facing pressure from an activist investor to clean house and potentially split up. Carlos Abrams-Rivera, Kraft Heinz CEO, stated that scale by itself is not the answer, but having scale along with focus creates opportunities.

As the dust settles on this significant announcement, the food industry watches with bated breath to see how this restructuring will play out for Kraft Heinz and the broader market.

Kraft Heinz aggressively pursued growth. They now hope a corporate separation will revive their ailing enterprise.