Kraft: Why did investors get “indigestion” over choc and cheese mix?

5th August 2011

The Telegraph reported how Kraft, which bought UK-based chocolate-maker Cadbury for over £11bn last year, had decided to split the business into "global snacks and confectionary" and "North American groceries".

The move amounted to a "u-turn in strategy" the newspaper reported.

Chief executive Irene Rosenfeld, said investors don’t like mixing low-and-steady US grocery sales with racier global confectionary brands like Cadbury chocolates.

In a statement Ms Rosenfeld said: “We have built two strong, but distinct, portfolios."

Kraft aims to split its business before the end of 2012 but does not know what the businesses will be called or who will run them.

The snacks company will include Cadbury chocolates and Trident gum along with the legacy Kraft snacks such as Oreo Cookies.

The North America grocery business, currently run by Tony Vernon, will house the likes of Kraft cheeses, Maxwell House coffee and Jell-O snacks.

The Financial Times (paywall) reported that the faster-growing snacks business has revenues of about $32bn, with about 42 per cent coming from developing markets.

Investors have, as predicted, welcomed the news.

Analysts at Credit Suisse estimated that the snacks group could grow at 7 per cent a year, against a 2 per cent growth rate for the North American business. "The biggest complaint we hear about this company is that it is too big and too slow," they wrote. "This solves it."

Billionaire Warren Buffett, Kraft's largest shareholder with 6 per cent, welcomed the decision to split the company into two. He told CNBC that he had spoken to Ms Rosenfeld this week and given her his approval for the deal.

Adrian Bailey, chairman of the House of Commons business select committee, said: "My immediate reaction is that they should provide reassurance that the plans they committed themselves to for Cadbury's are still going ahead, whatever the breakdown of the company is."

Sir Roger Carr, who led the robust defence against Kraft as chairman of Cadbury, applauded the move and called for the new company to be called Cadbury.

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