Food Business News - August 16, 2011 - (Page 18)

Additional amicable separations K raft Foods Inc., Northfield, Ill., is not the only food and beverage company spinning off business units in an effort to maximize shareholder value and improve management’s focus. The Sara Lee Corp., Downers Grove, Ill., on June 15 announced plans to spin off its international coffee and tea business and keep its North American meats business. “This transaction is more than a spin-off of one business segment — we are really separating a global company into two, independent pure-play companies, which adds complexity as well as opportunity,” said Jan Bennink, executive chairman of Sara Lee, during the Deutsche Bank Global Consumer Conference, held in Paris in June. “As we began to get into the details of separating the two businesses, we determined there are greater efficiencies to be gained from spinning off the international coffee business.” In July, Ralcorp Holdings, Inc., St. Louis, announced its plans to separate Ralcorp and Post Foods. As part of the separation, Post Foods will issue between $1.1 billion to $1.2 billion of debt with the net cash proceeds of about $1 billion going to Ralcorp. Ralcorp’s board of directors intends to use the proceeds to reduce debt, pursue private brand acquisitions and pursue additional share repurchases under the company’s remaining share repurchase authorization of about 5 million shares. Following completion of the transaction, Ralcorp will continue to trade on the New York Stock Exchange, and Post Foods also is expected to be listed on the N.Y.S.E. Upon completion of the separation, William P. Stiritz, currently chairman of Ralcorp, will serve as chairman of Post Foods. J. Patrick Mulcahy, currently vice-chairman of the Ralcorp board, will serve as chairman of Ralcorp. FBN bought Nabisco Holdings in 2000 for $19.2 billion. In 2006, Kraft acquired the European rights to the Nabisco brand by buying United Biscuits Iberia. More recently Kraft acquired Cadbury P.L.C. for $19 billion. While wary of growth prospects for the U.S. packaged foods industry, Mr. Moskow was anything but critical of the Kraft plan. “It makes strategic sense for a couple of reasons,” he said. “First is that in Kraft today you have two very different operating companies. I’ve always felt snacks and grocery just have different distribution systems. Snacks is D.S.D. (direct-store delivery). Grocery should be warehouse. I think combining the two has always been problematic. “Second, from an operational perspective, I thought management lacked focus as they tried to run such a big portfolio of businesses. What the separation does, is it squarely addresses investor concerns that this company was too big (or spread out), too slow and too bureaucratic.” Mr. Moskow warned against drawing excessively close analogies between the Kraft move and recent actions by other packaged foods companies, such as Sara Lee Corp., which was heavily involved in apparel and household items. “It isn’t the same as Sara Lee,” he said. “Sara Lee had a 1980s style portfolio that was more like a holding company. And you had a lot of nonstrategic assets to sell. There are no synergies between a bakery D.S.D. and a European coffee business.” A related phenomenon to heightened focus identified by Mr. Moskow is a move by many companies to get rid of misfit products. “With all the shedding going on and the deconsolidating, the activity is also a reflection that for many years, we had assets that were simply in the wrong portfolios,” he said. “For example, MilkBone never should have been within Kraft, it always should have been within Del Monte. I’m sure there is more of that to come.” Still more broadly, Mr. Moskow said the splitting of Kraft is emblematic of an unwinding of models that became popular 30 years ago. “The trend in the 1980s and 1990s was the view that if you spread in more categories you would have more bargaining power with your customers,” Mr. Moskow said. “Then the customers consolidated, the consumers became more fragmented, and I think the manufacturers needed to respond with a more specialized approach that was channel specific and at times consumer specific. “A good example is the rise of Costco. It required completely different packaging sizes, price points. Dollar stores, too. “From a consumer standpoint, you have a growing Hispanic population. You have teens consuming media in different ways. You have the aging of baby boomers. You can’t have a one-size-fits-all approach to the market. You have to adapt quickly.” Another casualty from the 1990s has been the supremacy of brands, Mr. Moskow said. “Brands aren’t as strong today,” he said. “The demise of the three major television networks, the fragmentation of that medium played a big role in that. You can’t have one ad that 40% of the population sees on a given day.” The splitting of businesses into more focused companies does not mean the companies will reach a point of stasis in the years ahead when it comes to major transactions, Mr. Moskow said. “When you shed non-strategic assets or you split up into pure play companies, you can then reload for more acquisitions that give you increased scale within those areas of focus,” he said. “I would expect that down the road.” Mr. Moskow identified The Hershey Co. as a model of the focused packaged foods company of 2011. “They are the leader in the category (U.S. chocolate),” he said. “They have a very clear strategy for innovation and advertising reinvestment. Their sales force investment has provided fantastic returns. They focus on one thing: Chocolate.” This positive assessment of Hershey stands in marked contrast to concerns voiced about Hershey when Kraft was pursuing the Cadbury acquisition. Analysts at the time wondered whether Hershey would be able to survive competing with giants such as Kraft and Nestle. Additionally, Hershey struggled earlier in the decade when it tried to broaden its product base. “They were asked to extend into cookies, energy bars and brownies,” Mr. Moskow said. “It didn’t work.” Even with changes at Kraft and other food companies, Mr. Moskow is cautious in assessing prospects for success in the balance of 2011 and into 2012. “I think growth is very scarce,” he said. “That’s largely due to very careful consumer spending. Also, I think changing tastes that don’t necessarily favor processed food are a factor. So, in general, we favor companies that have either very strong emerging markets exposure or they participate in some kind of niche categories in food with a lot of brand power.” FBN — L. Joshua Sosland 18 FOODBUSINESS NEWS ® August 16, 2011

Table of Contents for the Digital Edition of Food Business News - August 16, 2011

Food Business News - August 16, 2011
Ralcorp to buy Sara Lee refrigerated dough business
Whey protein’s emerging mass appeal
Gluten-free labeling in the spotlight
Web Contents
Editorial - Search for insights in P.&G.’s farewell to food
Nestle profi t down in fi rst half of year
Sara Lee income up sharply in year
Pilgrim’s Pride’s second-quarter earnings plunge
Snyder’s-Lance swings to loss in quarter
Consumers taking active role in beverage trends
Cargill recalls 36 million lbs of ground turkey
Consumers more concerned with fat, calories than HFCS
Investment group partnering with Kettle Cuisine
Smart Balance purchases gluten-free food company
Sunsweet acquires Function Drinks
Kraft's big Split
Additional amicable separations
Ralcorp to buy Sara Lee refrigerated dough business
Ralcorp net down on impairment charge
F.D.A. warns Lazy Larry brownies are unsafe
Cott income climbs 19% in second quarter
Lower salad volumes contribute to loss at Chiquita
Restaurant Performance Index above 100 in June
Cost and taste remain barriers for functional foods
Sugar prices strong as supplies tighten
Gluten-free labeling in the spotlight
Health and wellness remains at the heart of oil innovations
Inside the guar gum bubble
Use hydrocolloids to save on costs
Dairy Business News
Conditions remain diffi cult for Dean Foods
Dean Foods suffers loss after litigation charge
Whey protein’s emerging mass appeal
Adding ethical value
Dannon adds Greek Oikos to portfolio
Caribou adds ‘Grown-up Grilled Cheese’ to menu
Beech-Nut to co-brand baby food with Mott’s
Earth’s Best expands Sesame Street line
Popchips introduces jalapeño variety
Kettle Brand launches reduced-fat chip line
Tropical fl avor line extends beyond familiar
SunOpta completes purchase of juice company
Spicetec names director of marketing
Carton protects fragile products
GPC hires scientist, sales representative
F.D.A. has no objection to krill oil’s GRAS status
Birko to buy maker of washing, pasteurizing systems
Ingredient Markets
Ad Index
Food Business in the News

Food Business News - August 16, 2011