Kraft Heinz is exploring the possibility of spinning off a significant portion of its grocery business, including many Kraft-branded products, into a new company that could be worth as much as $20 billion, according to a source familiar with the matter.
However, the source added that the structure of the deal may change, and there is no certainty that Kraft Heinz will proceed with the spinoff.
This potential move is the second major step this week by a prominent U.S. company aiming to boost shareholder value amid an uncertain economy, where consumers are moving away from pricier products. Earlier this week, cereal maker WK Kellogg agreed to a $3.1 billion acquisition by Italy’s Ferrero.
The Wall Street Journal was the first to report the news earlier Friday. The report indicated that if finalized in the coming weeks, the spinoff would leave Kraft Heinz with brands such as Heinz ketchup and Dijon mustard label Grey Poupon.
“As announced in May, Kraft Heinz has been evaluating potential strategic transactions to unlock shareholder value,” a company spokesperson said.
Kraft Heinz shares closed up 2.5%, with the company’s market capitalization currently at $31.33 billion.
The company was formed in 2015 when Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital merged Kraft Foods with H.J. Heinz, which they had acquired in 2013. However, the investment has presented challenges for Berkshire.
Inflationary pressures and shifting consumer preferences toward fresher, less processed foods have reduced demand for Kraft Heinz’s lunch combos and other products. The company lowered its annual forecast and reported a weak quarter in April due to muted consumer spending.
Last month, Kraft Heinz also announced it would cease launching new products with artificial colors in the U.S., following Health Secretary Robert F. Kennedy Jr.’s proposal to eliminate synthetic food dyes from the U.S. food supply to combat chronic diseases.
“KHC spinning off its grocery business echoes the 2023 Kellogg spinoff in which the company spun off its cereal business, which had been in volumetric decline for some time,” said Connor Rattigan, analyst at Consumer Edge.
“As CPGs (consumer packaged goods makers) contend with both changing consumer preferences and a challenging consumer environment, other CPGs may look to M&A and or similar corporate actions to improve their category exposures and improve their top-line trajectory,” Rattigan added.
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