Kraft Heinz to Sell Part of Cheese Business to Lactalis -- 4th Update
September 15 2020 - 12:48PM
Dow Jones News
By Cara Lombardo and Annie Gasparro
Kraft Heinz Co. said it has agreed to sell a big chunk of its
cheese business to France's Groupe Lactalis SA for $3.2 billion, as
the struggling U.S. food company seeks to jump-start growth in its
other businesses.
The transaction involves Kraft Heinz's natural-cheese business
and consists of a mix of brands in the U.S. and Canada and the
company's cheese business outside of North America. The Wall Street
Journal first reported on the sale being imminent earlier
Tuesday.
Kraft Heinz has struggled in recent years with consumers
defecting to foods that seem trendier or healthier and the pressure
to revive sales has tempered its ability to improve profitability.
That is reflected in a stock that has lost more than half its value
and now gives the company a market capitalization of about $40
billion, not much more than its debt load of nearly $30 billion.
Some proceeds from the sale are earmarked for debt reduction, the
company said Tuesday.
Kraft is holding a virtual meeting with its investors on Tuesday
and already announced it plans to cut $2 billion in costs over five
years, returning to the strategy that inspired the company's
formation in a merger five years ago.
Closely held Lactalis, a global dairy company based in France,
produces brie, ricotta and other cheeses in the U.S. and sells them
under brands including President.
The company, which entered the U.S. about 40 years ago, has been
on an expansion spree here, acquiring Stonyfield organic yogurt
from Danone SA in 2017 in a deal valued at $875 million.
Adding the Kraft cheese business would boost the company's
footprint further at a time when demand for staple groceries is
higher than ever amid the coronavirus pandemic.
The sale will include Kraft shredded and blocks of cheese and
the Cracker Barrel brand in the U.S., Breakstone's cottage cheese,
and some other assets. Kraft Heinz will keep Philadelphia cream
cheese, Velveeta, Cheez Whiz and Kraft Singles in the U.S. It will
also retain its macaroni-and-cheese business world-wide.
The brands Kraft Heinz is selling had about $1.8 billion in
sales over the past year.
In 2018, Kraft Heinz agreed to sell its Canadian natural-cheese
business to Parmalat for over $1 billion.
Plans for the latest sale come as Kraft Heinz reorganizes its
business under new platforms that it says are more focused on what
consumers want, such as more convenient meals and snacks.
"We wandered away from the consumer," Kraft Heinz Chief Growth
Officer Nina Barton said at the meeting Tuesday. "We are rebuilding
the connection."
In the years following the merger, Kraft Heinz slashed about
$1.7 billion in annual costs. Its sales growth and market share
suffered.
That contributed to several of its biggest brands, losing value.
Since February 2019, Kraft Heinz has written down the value of its
brands by about $20 billion.
Kraft Heinz has also faced pressure from lower-priced store
brands in cheese, deli meat and coffee. Kraft Heinz owns Oscar
Mayer and Maxwell House, among other many other well-known
brands.
Kraft Heinz Chief Executive Miguel Patricio said the company,
which is partly owned by Brazilian investment firm 3G Capital, was
too focused on cost cuts and made shortsighted decisions under its
prior leadership. "We are changing that mindset," he said in an
interview.
Last year, Mr. Patricio took over at Kraft Heinz after several
years as chief marketing officer at Anheuser-Busch InBev SA,
another company in which 3G's partners are invested.
Mr. Patricio said Kraft Heinz will be more strategic about how
it cuts costs and will invest more of the savings in marketing its
brands, rather than passing it all on to the bottom line like the
company did in the past.
"Do we need to reduce margins to grow brands? The answer is no,"
he said.
RBC Capital Markets LLC was Kraft Heinz's financial adviser and
Paul, Weiss, Rifkind, Wharton & Garrison LLP served as their
legal adviser. Perella Weinberg Partners was Lactalis's financial
adviser and Dentons served as their legal adviser.
Write to Cara Lombardo at cara.lombardo@wsj.com and Annie
Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
September 15, 2020 12:33 ET (16:33 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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