Kellogg Announced Last Week Splitting into Three Companies

Jun 28, 2022 By MarketDepth

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Just last week Kellogg (NYSE: K) announced it would be splitting into three new companies, despite current market volatility. Many believe the move is one of long-term thinking in terms of its growth opportunities, regardless of the highs and lows.

Market Timing Always a Factor

According to research done by Emilie Feldman, an expert on corporate divestitures at The Wharton School, University of Pennsylvania, there is always a market timing element to divestitures. The change usually occurs as companies look to create spinoffs and new public offerings when market conditions are positive. However, it is also possible that when market conditions falter, some of the concentration may shift.

“The prevailing logic for divestitures might be to use them to focus on core assets that have the greatest future prospects. This is exactly what I think is happening with Kellogg … get out of businesses (cereal) where future growth potential and prospects might not be as favorable, and then focus on businesses (snacks, plant-based meat) where prospects might be stronger.”

Emilie Feldman

Feldman’s research demonstrates that after companies split businesses, they usually redeploy resources, such as financial capital, into areas with brighter future prospects in their remaining businesses.

“As market conditions tighten, the need to get the most ‘bang for your buck’ in terms of return on investment increases,” she said.