Download
HTML Embed
HTML EMBED
Click to Copy

Latest Episodes

Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Tech
Download
HTML Embed
HTML EMBED
Click to Copy
Make Me Smart with Kai and Molly
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy

Kraft Foods slices itself into two companies

Heidi Moore Aug 4, 2011
Share Now on:
HTML EMBED:
COPY

Kai Ryssdal: The share price specifics of today’s markets we’ll get to in due course, but one Blue Chip valiantly swam against the tide most of the day, trying in vain to stay positive.

Shares of Kraft — maker of cookies and comfort food — dropped a relatively tolerable 1.5 percent today. Not so bad when you get right down to it. The company said it’s going to split itself in two: one part making snacks like Oreos, the other making real food like mac ‘n’ cheese.

Our New York bureau chief Heidi Moore explains why Wall Street usually likes it when big companies can’t quite keep things together.


Heidi Moore: If you’ve ever eaten a big bowl of mac and cheese followed by a gooey chocolate bar, you know that they don’t go so well together. People who held shares of Kraft also got a stomachache after the company acquired Cadbury. Now, only 18 months later, Kraft realizes that the sweet part of its business is growing fast — and the grocery part is growing slowly. So investors want them on separate plates. But already?

Robert Profusek: The markets used to be more patient. Today the markets are very impatient.

That’s Robert Profusek. He’s a lawyer with Jones Day who’s a hardened veteran of mergers and breakups. He says investors are putting corporate executives under more pressure to keep their stock price strong, or risk losing their jobs.

But shareholders don’t usually like sprawling companies. For every part of a big company they like, there’s a part they’re not happy with. So they slap a discount on the stock price, about 10 to 15 percent.

A breakup makes these companies quick and nimble; investors pay a premium for that, says Anant Sundaram. He’s a professor at Dartmouth’s Tuck School of Business.

Anant Sundaram: The stock price impact of breakups is very, very positive. Breakups create substantial value to the point where you wonder why don’t companies break up all the time.

And, it just so happens, companies do seem to be breaking up all the time this year. The business section of the newspaper looks like a copy of US Weekly. Except instead of J. Lo and her husband, it’s ITT, Motorola, Sara Lee, McGraw-Hill and ConocoPhillips. But that’s not unusual, says Profusek.

Profusek: There’s not any permanence in the corporate world.

A big bonus, of course, is that these splits happen to tax-free. So unlike those divorces you read about in US Weekly, these breakups are relatively cheap.

In New York, I’m Heidi Moore for Marketplace.

If you’re a member of your local public radio station, we thank you — because your support helps those stations keep programs like Marketplace on the air.  But for Marketplace to continue to grow, we need additional investment from those who care most about what we do: superfans like you.

Your donation — as little as $5 — helps us create more content that matters to you and your community, and to reach more people where they are – whether that’s radio, podcasts or online.

When you contribute directly to Marketplace, you become a partner in that mission: someone who understands that when we all get smarter, everybody wins.