What happened
Nearly two years after it was first talked about, Kellogg Company has been split in two. The global business with an emphasis on snacks will retain the "K" ticker symbol under its new name Kellanova (K -1.23%). Meanwhile, the cereal business for North America has been spun out as WK Kellogg (NYSE:KLG).
Shareholders of former Kellogg have the same number of Kellanova shares. For example, if you owned 100 shares of Kellogg, you now own 100 shares of Kellanova. However, shareholders also now own one share of WK Kellogg for every four shares of Kellogg they owned. For the investor with 100 shares of Kellogg before, you now have 25 shares of WK Kellogg in addition to your 100 shares of Kellanova.
A spinoff doesn't create shareholder value, which is why Kellanova is down today -- it no longer represents the business of WK Kellogg. As of 12:20 p.m. ET, Kellanova stock was down about 6%, and WK Kellogg stock was down about 5% from where it opened up.
So what
On Friday, Kellogg stock closed its final day of trading at $59.51 per share, according to Yahoo Finance. Assuming someone owned 100 shares of Kellogg, that was worth $5,951.
Today, those shareholders own 100 shares of Kellanova and 25 shares of WK Kellogg, worth a combined $5,533 as of this writing. While it was logical to expect a drop in Kellanova stock due to the spinoff of WK Kellogg, it appears the market has overcompensated, considering overall shareholder value has dropped roughly 7% from Friday.
Now what
Spinoffs don't create shareholder value, but they can "unlock" it. In theory, more focused management teams can accomplish more than what they can when trying to oversee too many things.
That's the hope here for Kellanova. By spinning off the cereal business, Kellanova's management will try to deliver better growth and returns for shareholders by focusing on better opportunities.
For its part, the cereal business in North America is low growth. But it's at least consistent, which may appeal to certain investors.
