• by Thom Forbes  @tforbes, August 5, 2011

Bowing to shareholder activists, Kraft's CEO changed her "bigger-is-better" mind yesterday and announced that the company would break up into two so-far unnamed entities -- one that will market sugary goodies like Oreos, Trident gum and Cadbury's candies and the other to move the cash-cow, middle-aisle stuff like Mac & Cheese, Jell-O and Maxwell House coffee, Anupreeta Das, Gina Chon and Paul Ziobro report in the Wall Street Journal. Which executives will run what -- CEO and CMO, for example -- was unannounced.

"The timing of the move caught many on Wall Street and in the industry off guard," according to the Journal report. But "this is something that we've been studying for some time," CEO Irene Rosenfeld told the New York Times' Michael de la Merced in a phone interview.

The "activists" pushing for the split include grizzled rabble-rousers such as Nelson Peltz's Trian Fund Management LP, Bill Ackman's Pershing Square Capital Management and Warren Buffett's Berkshire Hathaway. Sure-fire winners? The bankers processing the paperwork, writes the Journal's Shira Ovide .

"By cleaving itself in two, the company is essentially letting shareholders choose between the fast-growing snacks business or the grocery business, which generates a lot of cash and enjoys strong profit margins despite its lower growth," writes de la Merced.

"The big idea for us is to recognize that these are two very different portfolios that we believe can benefit with a focused mandate," Rosenfeld told listeners in a conference call. Following the protracted battle to win the U.K.'s Cadbury -- a deal that closed for $19 billion in February 2010 -- and the acquisition of Danone's biscuit business, "it was clear we had very different businesses in the portfolio," she revealed.

Ad Age's EJ Shultz asks (or rather, I'm guessing, EJ's editor asks) "What Does Kraft's Planned Split Mean for Adland?" Responds Kraft spokesman Mike Mitchell: "There are no immediate changes to agency relationships as a result of this announcement." But long term, Shultz writes, that "could" change and consolidation might happen in the grocery business, in particular, as Kraft intends to maintain a "sharp focus on cost structure."

Shultz reviews the flurry of recent roster moves and shake-ups at Kraft -- Trident in review, Triscuit to CP&B, A-1 to Creature, etc. -- but discerns no connection to yesterday's announcement and says, in fact, that several new agency relationships seem to belie the idea that the emerging companies would trim the sails.

One source tells Bloomberg's Duane D. Stanford and Jeffrey McCracken that some Kraft executives think the company is "spending too much money to market and advertise its slower-growing grocery business." Splitting out that business "would allow it to be run on a cash-flow basis and operate more like" H.J. Heinz, Campbell Soup and Kellogg, with a focus on cutting costs, they write.

"Given the different investment priorities and growth trajectories of the two businesses, it makes a lot of sense to separate them," concurs Sanford C. Bernstein & Co. analyst Alexia Howard.

Adweek, which is dancing to a new beat, had no coverage of the announcement early this morning.

Reaction in the U.K., where the closing of a factory in Bristol has exacerbated the already unpopular acquisition of beloved Cadbury, was mixed, with both a touch of "I told you so" and "show me," as the Yanks would say.

"I'm pleased for Kraft shareholders that Irene Rosenfeld has seen the merit of focus and delighted for Cadbury that they will once again be part of a pure play confectionery business," says Sir Roger Carr, who vigorously fought for Cadbury's independence and resigned as chairman as soon as it was acquired.

"My immediate reaction is that they should provide reassurance that the plans they committed themselves to for Cadbury's are still going ahead, whatever the breakdown of the company is," Adrian Bailey, chairman of the House of Commons business select committee, said. Rosenfeld assured the Financial Times' Helen Thomas and Alan Rappeport that its previous promise "to keep the remaining manufacturing plants open for at least two years and to commit investment to research activities" will remain in force.

Breakups are the trendy thing to do, report Bloomberg's Devin Banerjee and Zachary Mider. "It's a revision of the corporate business model where companies would grow to balance out their businesses," Huntington Asset Advisors senior portfolio manager Peter Sorrentino tells them. "Today there's a market-implied impediment to that. And if you can't get paid for the businesses, you break them up."

In other words, the stock market is not exactly in a gregarious mood.

I'm going to leave you for the weekend with a song that invaded my head as I began to write this morning and needs to be released to the universe. It is, of course, the Foundations' classic, "Why Do You Build Me Up, Buttercup?" Take it, it's yours. Please.

Editor's note: NO!!!!! Get it out of my head!