What Does The $3.2 Billion Kraft Heinz Company-Lactalis Cheese Deal Mean?

Kraft Heinz Company (KHC) is selling off part of its cheese business in a $3.2 billion deal to the U.S. arm of French dairy company Groupe Lactalis.

The sale, which is expected to close in the first half of 2021, will include the sale of Kraft Heinz’s Breakstone’s, Knudsen, Polly-O, Athenos, Hoffman’s, and Cracker Barrel brands in the U.S. and Cheez Whiz brand outside of the U.S. and Canada.

Kraft Heinz will continue to hold on to the Philadelphia Cream Cheese, Kraft Singles, Velveeta Processed Cheese, and Cheez Whiz Processed Cheese brands in the U.S. and Canada as well as its Kraft Velveeta and Cracker Barrel Mac & Cheese businesses worldwide. It will also retain its Kraft Sauces line globally.

The agreement between Kraft Heinz and Groupe Lactalis also calls for the sale of production facilities located in Tulare, California, Walton, New York, and Wausau, Wisconsin. A distribution center in Weyauwega, Wisconsin, will also be sold to Groupe Lactalis.

The 750 employees at the facilities will be transferred to the new owner and continue to operate as normal, Kraft Heinz said. Groupe Lactalis has a presence in 51 countries with 266 dairies and cheese dairies located worldwide.

“We believe these cheese and dairy businesses will thrive in the hands of a global dairy company like Groupe Lactalis,” Kraft Heinz CEO Miguel Patricio, said in a statement. “At the same time, the transaction will enable us to build sustainable competitive advantage in businesses where we have stronger brand equity, greater growth prospects and can use our manufacturing scale and consumer-based platforms approach.”

Kraft Heinz said its cheese business contributed about $1.8 billion to its net sales over the last 12 months through June 27. The company had total net sales in 2019 of about $25 billion. Kraft Heinz said it expects to use the proceeds from the sale of its cheese business to pay down its debt.

At the same time that Kraft Heinz announced the sale of its cheese business, the company introduced a restructuring of its food business. Here, a new operating model will be implemented by the company that focuses on its resource allocation and investment opportunities.

Shares of Kraft Heinz were selling at $32.25 as of 1:48 p.m. EDT, up 38 cents of 1.19%.