Kraft Heinz Serves Up the Same Uninspired Recipe

Kraft Heinz (KHC.O) is reshaping its sausage business — and the result looks just as unappetizing as before. CEO Carlos Abrams-Rivera has unveiled plans to spin off Oscar Mayer hot dogs and other North American grocery staples into a tax-free standalone company, separate from its global “taste elevation” portfolio of condiments like ketchup. Despite the appearance of creating distinct businesses, the endless cycle of deal-making still seems to leave the same stale aftertaste.

The $33 billion group is effectively dismantling the messy megamerger orchestrated a decade ago by 3G Capital and Warren Buffett. Since the 2015 union of Kraft and Heinz, its share price has plunged 70%. Buffett’s Berkshire Hathaway (BRKa.N) marked down the value of its investment again last month, while 3G sold its last stake years ago.

The merger was initially sold as a triumph. Kraft and Heinz promised nearly $1.5 billion in annual savings from scale. Yet on Tuesday, Abrams-Rivera touted the benefits of breaking up the business — from reducing operational complexity to sharpening capital allocation. Even so, separating the two food arms is expected to create only about $300 million in dis-synergies.

The financial engineering sounds remarkably upbeat, but the company today is not being divided along the same lines that were stitched together a decade ago. For instance, according to Visible Alpha, Kraft Heinz spent 14% less on selling, general and administrative costs as a share of revenue last year compared with peers Kellanova (K.N.) and McCormick (MKC.N). To claw back lost ground, both new businesses will likely need to invest far more heavily.

The company’s convoluted corporate history also raises doubts about the long-term value of this breakup. Kraft was once part of tobacco giant Philip Morris (PM.N), whose aggressive M&A strategy unraveled two decades later. Kraft later acquired British confectioner Cadbury, only to split again in a deal that created Mondelez International (MDLZ.O).

Investors remain unconvinced. Kraft Heinz shares dropped another 7% on news of the separation. That casts serious doubt on whether a company generating nearly $4 billion of EBITDA last year can grow fast enough on its own to warrant a McCormick-style valuation of 14 times earnings. If it could, the standalone “taste elevation” business would be worth $56 billion — equal to the current value of the entire group. Just as when Kraft and Heinz first came together, the company appears to be stretching the story further than reality allows.

—Jennifer Saba on BlueSky and LinkedIn

Reference News
On September 2, Kraft Heinz confirmed board approval for a tax-free spin-off into two independent, publicly traded companies. The split will carve out shelf-stable products like Oscar Mayer meats, Kraft Singles, and Lunchables.

Abrams-Rivera will remain CEO of the North American grocery business, which reported $10.4 billion in net sales and $2.3 billion in adjusted EBITDA in 2024. The board is seeking a leader for the so-called Global Taste Elevation unit, which posted $15.4 billion in net sales and $4 billion in adjusted EBITDA last year. The company expects the separation to create up to $300 million in dis-synergies.

Centerview Partners is advising Kraft Heinz.