Kraft Heinz Weighs $20 Billion Spin-Off, Eyes Break from 2015 Merger

Kraft Heinz (KHC.O), based in Chicago and Pittsburgh, may consider a spinoff of its slower-growing brands, including Velveeta cheese, as its final attempt to improve returns by reversing its decade-old merger that has not succeeded.

Kraft Heinz is exploring the possibility of spinning off a significant portion of its grocery business, including many Kraft products, into a new entity. This new entity could be valued at up to $20 billion, which would make it the largest deal in the consumer goods sector this year.

Additionally, Kraft Heinz's convenience-oriented products, such as Lunchables meal kits, are facing scrutiny in the United States due to the "Make America Healthy Again" (MAHA) social movement, led by U.S. Health Secretary Robert F. Kennedy Jr.

Kraft Heinz may be considering undoing its $45 billion 2015 merger, though details on splitting its 200 brands are unclear. The condiments division, including Heinz ketchup and Philadelphia cream cheese, generated $11.4 billion in sales last year and has potential for international growth. Analysts suggest it could be more valuable as a standalone entity than the overall company’s current trading value.

Kraft Heinz's remaining products, including legacy brands like Oscar Mayer, generate $14.5 billion in sales but face competition from cheaper private-label options. These products would likely be valued in line with the company, which trades just below nine times its earnings.

This path is risky because the separation alone may not create a huge benefit for investors, according to analysts and investment bankers.

It has been said, Kraft Heinz's board and management may have looked at the breakup of the Kellogg Co. as a success story they could replicate.