Mondelez International Readies for Another Spinoff?

The snack-food giant continues to position itself for a transformation into a niche pure-play.

Rich Duprey
Rich Duprey
Jul 15, 2014 at 12:30PM
Consumer Goods

Source: Wikimedia Commons.

Fresh from calving off its coffee business, global snack-foods giant Mondelez International (NASDAQ:MDLZ) appears ready to slice up its operations once again. The Oreo cookies maker is separating its cheese and grocery units in Europe, allegedly preparing to ready them for a sale or spinoff as a freestanding company, obviously a result of the influence being exerted by billionaire shareholder Nelson Peltz. 

The activist investor has maintained steadfast conviction that snack foods are the growth industry of the future. Last year he took a sizable position in PepsiCo to advocate for a major shakeup of the soda company. He wanted the beverage giant to spin off or sell its soda division and use the proceeds from it to acquire Mondelez, which would then be melded with Pepsi's Frito-Lay. Management and the board resisted his overtures, though, and he subsequently gave up the acquisition aspects of his plan after he gained a seat on Mondelez's board of directors.

He's used that position as a bully pulpit to transform the company into a snack-foods pure play, and it was his fingerprints that were on the company's spinoff of its coffee business. In May, Mondelez announced that it was combining its coffee business with that of D.E. Master Blenders to create a new global pure-play coffee giant housing brands including Gevalia, Tassimo, Senseo, and the international business of Maxwell House. Now he's apparently readying the next stage of the transformation with the cheese and grocery realignment. 

Mondelez has the international business of Philadephia brand cream cheese that it received as a result of its spinoff from Kraft Foods two years ago, as well as Cheez Whiz, Miracle Whip, and Kraft Cheddar Cheese. The cheese and grocery division accounted for 8.5% of Mondelez's first-quarter revenues of $8.6 billion, while the European unit accounted for nearly half of it, or 4%.

Even though Mondelez's gum business continues to struggle, it comprises 13% of total revenues and is much closer to the sort of snack business Peltz and fellow activist investor Ralph Whitworth envision as the ideal composition for the company.

Still, not all analysts are convinced there will be a spinoff anytime soon, believing the snack-food company already has a lot of moving parts so that divesting the unit at this time will divert management's attention. The company itself says making the businesses separate units was decided upon back when it began the process of calving off coffee into the new Jacobs Douwe Egberts, but whether that means it plans on spinning off cheese and grocery, too, it doesn't say, preferring not to comment on speculation.

When the coffee sale was announced, Mondelez International's stock jumped, pushing it to new record levels. I thought investors would be best served waiting until all the activity settled down before taking a stake, because it was going for a premium valuation. I think that still holds true despite the latest speculation, and the market seems to agree, as the initial spike it registered following publication of the report has calmed down and the stock remains about where it was beforehand.

While snack food itself is a growth opportunity, consumers are looking for more than just junk food to nosh on. Better-for-you snack foods is where the real opportunity lies, and Mondelez International could be a stock that's worth snacking on if it seizes it.