The snacks business, with estimated revenue of about $32 billion, will consist of the current Kraft Foods Europe and developing markets units as well as the North American snacks and confectionery businesses, the company said in a statement. The North American grocery business would consist of the current U.S. beverages, cheese, convenient meals and grocery segments and the non-snack categories in Canada and food service. The tax-free spinoff could be complete by the end of 2012. Kraft's strategic move underscores the recent sentiment of a number of established companies, namely that growth potential in developed markets is weak at best, at least in the foreseeable near term, as consumer spending is kept in check by uncertain economics and still-unstable employment and housing markets. Meanwhile, growth potential in emerging markets is seemingly boundless.
"Given the different investment priorities and growth trajectories of the two businesses, it makes a lot of sense to separate them," Sanford C. Bernstein analyst Alexia Howard noted Thursday. "The strategic rationale for such a move is strong." She said Kraft's split will aid CEO Irene Rosenfeld in expanding Kraft's footprint in emerging markets and take on new acquisitions, all while working to push the company's higher-margin U.S. grocery business forward. Sara Lee ( SLE) and Fortune Brands ( FO) have been working on similar moves to deleverage their companies through spinoffs.
P&G's message was "consistent" with what other executives have been saying, RBC Capital Markets analyst Jason Grere told TheStreet. In the meantime, "economic scenarios will weigh down on a lot of these companies, just as in other industries," Gere added. Now it's a matter of who can execute the best in the second half of this year. "That's the real question: Who will have the best execution, merchandising and innovation, and will take market share from others in a weak category market," Gere said. Shares of Kraft were up 94 cents, or 2.75%, to $35.24 in early afternoon trading trading amid very high volume. Nearly 22.5 million shares changed hands less than two hours into the trading session, compared with their average daily volume of just 8.9 million. -- Written by Miriam Marcus Reimer in New York. >To contact the writer of this article, click here: Miriam Reimer. >To follow the writer on Twitter, go to http://twitter.com/miriamsmarket. >To submit a news tip, send an email to: firstname.lastname@example.org.
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