Kraft Heinz to Sell Slice of Cheese Business to Lactalis for $3.2B

Kraft Heinz agreed to sell a portion of its cheese businesses to a U.S. affiliate of French dairy company Groupe Lactalis for $3.2 billion.
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Kraft Heinz  (KHC) - Get Report said Tuesday agreed to sell a portion of its cheese businesses to a U.S. affiliate of the French dairy company Groupe Lactalis for $3.2 billion.

Shares of the Pittsburgh food-and-beverage giant at last check were up 0.6% to $32.06.

The cheese businesses being sold contributed about $1.8 billion to Kraft Heinz’s net sales for the year ended June 27, the company said.

The transaction, which is expected to close in the first half of next year, includes Kraft Heinz’s natural, grated, cultured, and specialty cheese businesses in the U.S.; grated cheese business in Canada; and the entire international cheese businesses outside the two countries, including Breakstone’s, Knudsen, Polly-O, Athenos, Hoffman’s, Cracker Barrel (only in the U.S.), and Cheez Whiz (only outside the U.S. and Canada).

Kraft Heinz will also partner with Lactalis on a perpetual license for Kraft in natural, grated and international cheeses and Velveeta in shredded and international cheeses.

Kraft Heinz will sell production facilities located in Tulare, Calif.; Walton, N.Y.; and Wausau, Wis., and a distribution center in Weyauwega, Wis. Roughly 750 employees will be transferred from Kraft Heinz to Groupe Lactalis.

Lactalis said it expects to add additional American jobs once the deal is completed.

Closely held Lactalis produces brie, ricotta and other cheeses in the U.S. and sells them under brands including President, Galbani and Parmalat.

Lactalis, which entered the U.S. about 40 years ago, has been expanding in the U.S., acquiring Stonyfield organic yogurt from Danone DANOY in 2017 in a deal valued at $875 million, The Wall Street Journal reported.

The news comes one day after Kraft Heinz said it would cut $2 billion of costs over four years and use the funds to boost marketing spending 30%.

The company has struggled since Kraft and Heinz merged five years ago, with analysts seeing it as too slow to alter older brands and unwilling to commit adequate resources to marketing.

In July, Kraft Heinz reported stronger-than-expected second-quarter adjusted earnings on what it said was "strong retail performance across all business segments."

U.S. consumers have flocked to established brands as they stock up pantries during the coronavirus pandemic.