Eighteen months after acquiring Cadbury in a hostile takeover, Kraft Foods Inc today said that it  intends to create two independent public companies focussing on a snacks business with revenue of $32 billion and a North American grocery business with a revenue of around $16 billion. 

Kraft expects to create these companies through a tax-free spin-off of the North American grocery business to Kraft Foods shareholders, latest by the end of the year and expects the final separation of the businesses to take approximately 12 months with the current target to launch the new companies being by end of 2012.

However, the break up is subject to regulatory approvals and a favorable ruling from the Internal Revenue Service to ensure the tax-free status of the spin-off of the North American grocery business to Kraft shareholders.

"We have built two strong, but distinct, portfolios," said chairman and CEO Irene Rosenfeld.

Rosenfeld said, "Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realise their full potential.

Since its acquisition of Cadbury, it has built a global snack foods platform that differs in future strategic priorities from and the high-margin North American grocery business, requiring individual growth profiles and operational focus for the two businesses.

For example, Kraft Foods' snacks business is focused largely on capitalising on global consumer snacking trends, building its strength in fast-growing developing markets and in instant consumption channels; while the North American grocery business is investing to expand its revenue in line with its categories in traditional grocery channels.

"Over the course of Kraft Foods' strategic transformation, the board of directors and management have continually explored opportunities to further enhance performance and increase long-term shareholder value and believe that creating two independent public companies is the logical next step, " Kraft said in a public statement.

It said, "Specifically, detailed review by the board and management has shown that these two businesses would now benefit from being run independently of each other, rather than as part of the same company."

Kraft recognises that a spinoff would enable the two companies to make capital allocations and investments based on their individual strategic priorities, with financial targets that best fit their own markets and opportunities.

Kraft's proposed global snacks business will consist of the current Kraft Foods Europe and developing markets units as well as the North American snacks and confectionery businesses.

According to Kraft, approximately 75 per cent of revenues of the $32-billion snacks business would come from global operations of which  around 42 per cent would be from developing markets, including the emerging markets  and have a strong presence in the fast-growing and high-margin instant consumption channel.

The non-snacks portion of the portfolio would consist primarily of powdered beverages and coffee, which have a strong growth and margin profile in developing markets and Europe. Key brands of the business would include Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee,and Tang powdered beverages.

The North American grocery business would consist of the current US beverages, cheese, convenient meals and grocery segments and the non-snack categories in Canada and its food service business. With approximately $16 billion in revenue, this business would be one of the largest food and beverage companies in North America, Kraft says.

Its portfolio would include many of the most popular food brands that include Kraft macaroni and cheese, Oscar Mayer meats, Philadelphiacream cheese, Maxwell House coffee, Capri Sun beverages, Jell-O desserts and Miracle Whip salad dressing.