Kraft Expected to Be Cash-Rich After Split-Up
Food and consumer products giant Dart & Kraft on Monday revealed the terms of its corporate divorce.
The Northbrook, Ill., conglomerate said Premark International, the consumer products unit, will pay Kraft, the food division, a $300-million, one-time dividend as part of the breakup. William Maguire, an analyst with Merrill Lynch in New York, said that after the split, Kraft will have a cash hoard of about $700 million and little debt.
“Kraft will have an embarrassment of riches,” said Roger Spencer, a food industry analyst with Paine Webber. Kraft said it may use the money for acquisitions.
Improving Market Value
Dart & Kraft, formed by the merger of Kraft Foods and Dart Industries six years ago, is spinning off its slower-performing businesses into the new Premark. The move is widely viewed as an effort to improve Kraft’s market value, which has been hurt by poor performance in the consumer products businesses.
Analysts said that Dart & Kraft’s earnings have especially been hurt by Tupperware’s sagging performance. That unit’s sales have declined from about $825.1 million in 1983 to $761.7 million last year. Tupperware has undergone a management change in the past year, however, and analysts say the company seems poised for a turnaround.
Fred Clay, a Dart & Kraft spokesman, said the $300-million dividend “was just a way to capitalize Premark. We’re not trying to benefit one company at the expense of the other.” Analysts said it wasn’t unusual and wouldn’t affect the combined value of Kraft and Premark shares.
One Share for Four
Dart & Kraft said shareholders will get one Premark share for every four Dart & Kraft shares after the split is completed in late October or November. An application is being made to the New York Stock Exchange to list Premark shares, which food industry analysts valued Monday at $7 to $8 a share. Kraft shares are expected to trade at around $55 a share after the split, analysts said.
Dart & Kraft shares closed at $61.37 1/2 Monday, down $2.75 on the New York Stock Exchange.
Dart & Kraft said it will take a $40-million charge against third-quarter earnings to cover costs of the breakup. The company earned $124 million in the third quarter last year.