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Summary
- Kraft Heinz and Hormel Foods have been in discussion with the former planning to sell its Planters snack business to the latter for approximately $3 billion.
- Hormel Foods is looking forward to expand its business through the acquisition.
The Kraft Heinz Company (NASDAQ:KHC) is in talks with Hormel Foods Corporation (NYSE:HRL) to sell its Planter snack business for $3 billion. The deal might be finalised in the new few weeks as Hormel is planning to diversify its product portfolio. Established in 1906 by two Italian immigrants, Planters is into snacks business which primarily sells nuts and snack mixes. The popular brand features Mr. Peanut, a top hat-wearing mascot, since 1916.
Why is Kraft Heinz selling Planters?
The move to unload the 100-years old Planters brand comes after the company felt that the sale could generate a huge cash windfall, which can be used by Kraft Heinz to pay off its existing debt and facilitate investment in companies or brands that are trending in the present times.
(Image Source: © Kalkine Group 2020)
Kraft Heinz, the merged entity of Kraft and Heinz, has been struggling to survive since the time the merger took place in 2015. Market experts believe that the company has been slow in altering its older brands and coping up with the changing taste and preferences of the consumers. This is the third largest food giant of North America, which owns some of the most iconic brands such as Lunchables, Maxwell House coffee, and Oscar Mayer meats.
Kraft Heinz had announced plans to boost its marketing spend by 30 per cent in September 2020 by using the finances to be derived from a $2 billion cost cutting over the next four years. The company has also cut short its less popular brands from its product line as part of its multiyear turnaround effort. For instance, Kraft Heinz sold a portion of its cheese business to French dairy firm Lactalis for $3.2 billion.
The company had also recorded huge impairment charges in recent years, relating to various struggling brands. The impairment charges of Planters and six of its other unpopular brands were worth $2.9 billion in Q2 2020. However, the revenue of Kraft Heinz grew in the previous three quarters as the sales for packaged food companies got a boost during the pandemic due to high demand. The crisis also saved some of the company’s ageing brands.
Hormel’s bid for Planters
Hormel Foods is a Minnesota-based company that has been in existence since 1819. Its core business is selling chili and deli meat products. The company has been looking to diversify its business. The acquisition could add to the company’s product mix of well-known brands.
Hormel might decide to move Planters to its premium offerings where it has an expertise. It had also bought Sadler’s Smokehouse for $270 million in 2020, followed by Justin’s Nut Butters for $286 million in 2016 and Applegate, an organic meat producer, in 2015.
