- Kraft Heinz reportedly spinning off Kraft-branded business
- Remaining company would focus on sauces, condiments, and spreads
- Bond markets are reacting, with investors repositioning based on potential debt restructuring
- Warren Buffett’s Berkshire Hathaway could be preparing to exit its stake in Kraft Heinz
- Kraft Heinz has not confirmed the reports
Last week brought rumours that food giant, Kraft Heinz, is to spin off a huge portion of its business, which includes Kraft products.
Reports, first published in The Wall Street Journal (WSJ), say the deal could be worth as much as $20bn (€17bn) and would leave the company comprised of sauces, condiments and spreads.
What’s more, it could be finalised in a matter of weeks.
When asked to confirm if the rumours were true, Kraft Heinz told us it does not comment on “rumours or speculation”.
However, the rumour mill has not stopped turning since the story broke. Here’s the latest.
Bondholders prepare for split
Kraft Heinz might be staying silent over a possible split, but the financial world is getting ready.
According to Bloomberg, Kraft Heinz Co.’s bond investors are positioning themselves for a possible split and analysing the “probable losers and winners”.
Some of the company’s bonds have weakened relative to Treasuries since the rumours emerged, as it raises questions about whether the debt could end up at a lower-margin business. The spread on Kraft Heinz’s 3.875% notes due 2027, for example, widened five basis points since Friday to 68 basis points, according to Trade Reporting and Compliance Engine (TRACE). Spreads on high-grade bonds were on average unchanged on Friday and Monday, Bloomberg index data showed.
At the same time, money managers expect some of the company’s bonds to rally, if Kraft Heinz looks to buy back securities to cut its debt load before splitting up. Securities with prices below face value may be good candidates for being bought back as a way to cheaply cut liabilities, says Bloomberg.
Meanwhile, the firm’s 4.875% bonds due 2049, which trade at about 83 cents on the dollar, have seen their spreads narrow 2 basis points to 127 basis points over the last three sessions, according to TRACE. Companies often buy back debt at some premium to market value, so investors that buy now may still be able to profit.
Warren Buffet getting out of Kraft Heinz
Rumours that Kraft Heinz is secretly in talks to split have also fuelled rumours that Warren Buffet’s Berkshire Hathaway is pulling out of the business.
Buffet bought Heinz back in 2013, then pursued plans to bring the “iconic brands together” under the Kraft Heinz Co. in 2015.
Plans to split the relationship up just ten years later represents a rare failure for the famed investor.
Though the Kraft Heinz Company remains hugely profitable, with a value of $31bn.
Watch this space for further updates as we get them.
