Skip to main content

The Globe and Mail

Kraft’s spinoff math adding up, for now

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities. Click here to read more international insights.

Mergers are designed to prove that 1 + 1 > 2. Conversely, bosses and bankers argue, spinoffs can prove that 1 = 0.6 + 0.6. This is math for optimists. Alas, in the separation of old Kraft (including Cadbury) into new Kraft and Mondelez, effected six months ago, standard arithmetic holds so far.

The idea was to create a low-growth, high-yield, cost-focused North American packaged food company and a faster-growing international snacks, candy and coffee business. This "bifurcates the investor base" into growth and value, giving Mondelez a higher valuation, and brings "focus." that is, optimal allocation of human and financial capital in each business.

Story continues below advertisement

Before the split, old Kraft had an enterprise value (market capitalization plus net debt) of about $96-billion (U.S.) and its shares traded on a multiple of forward EV to earnings before interest taxes depreciation and amortization of just under 10 times. New Kraft and Mondelez together have an enterprise value of about $105-billion, and trade on 11 and 12 times EBITDA. That is to say, the pieces are now about 10 per cent more valuable than the whole was. Sounds good, until you remember that over the past six months consumer staples' shares generally are up about 10 per cent, and many food companies (from Hershey's to General Mills) have done much better than that.

The split may yet prove itself. The U.S. economy has done well relative to the wider world in recent months, making a premium for Mondelez hard to achieve (especially when it derives 40 per cent of its sales from recessionary Europe). There are also rumours that an activist investor is interested in trying to force together Mondelez and PepsiCo's snacks business. This, however, risks creating a snacks conglomerate of unmanageable size. But then a future spinoff or two would solve that problem, surely?

Report an error

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at