Kraft's Move May Increase Nasdaq Confidence
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After weeks of questions surrounding its handling of the Facebook IPO, Nasdaq (NASDAQ: NDAQ) finally got a bit of good press. Kraft (NASDAQ: KRFT) announced that it will move from the NYSE (NYSE: NYX) to Nasdaq, effective June 26. Kraft’s symbol will remain the same until a planned company separation, expected by the end of the year, when Kraft will switch to KFRT and the newly created snack food division Mondelez International will be listed as MDLZ.
Kraft has been on the NYSE since 2001, when it split from Phillip Morris. The move marks the first Dow Industrial benchmark to switch from Nasdaq to NYSE. But the NYSE is still ahead in the number of companies that have defected to it this year. Eight companies moved in that direction, including Teva Pharmaceuticals and TD Ameritrade. Half as many companies moved towards Nasdaq. That group included Texas Instruments and Western Digital.
NYSE, aka the “Big Board,” offers the listing companies prestige by association. But that storied reputation comes with higher listing fees and stricter entry requirements. Nasdaq has lower listing fees, particularly for IPOs, and an aggressive marketing attitude that Kraft cited as one of its reasons for defecting. Nasdaq offers promotions through what it calls “visibility properties” which include the MarketSite in Times Square.
This is a coup for Nasdaq, especially since the Facebook incident cast legitimate doubts on its management abilities. The addition of the second largest global foods brand also helps diversify Nasdaq away from its tech-centric slant.
KRFT vs. MDLZ
Mondelez will consist of what are currently the Kraft European and Developing Markets divisions plus the North American snacks business. This new company will house established brands including, Oreo, Ritz, and Cadbury, which Kraft acquired in 2010 for $11.9 billion and continues to make a major priority. The Mondelez branding will be subtle and the well established brands, called Power Brands, will use reputation to sell themselves.
Kraft had annual revenues of $54.4 billion in 2011. The European division accounted for 18.4% of those revenues, Developing Markets for 26.9%, and the NA snacks business for 11.1%. That adds up to 56.4% of revenues for the divisions that will become Mondelez.
The company that will continue as Kraft will have the grocery business, which earns most of its sales in North America. The majority of the grocery business in 2011 came from dressings, condiments and desserts, which accounted for 16.3% of revenues. Brands in that segment include Jell-O, Kraft, and Miracle Whip. The next best performers were cheese (8.3%) and convenient meals (4.2%). The latter includes products from Oscar Mayer and Lunchables.
Out of the two companies, Mondelez has a better chance at surging ahead. In the fourth quarter results reported in February, the largest fiscal year booms came from Developing Markets (16.2%) and Europe (14.9%).
The Coming Months
Nasdaq is setting aside $40 million to cover the Facebook order flubs but that, and the Kraft move, might not be enough for other companies to choose it over NYSE in the coming months.
Personnel decisions for the Kraft split will be made soon with the new tickers to appear on Nasdaq before the end of the year.
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