• by Thom Forbes  @tforbes, November 19, 2015

In the latest of a series of shake-ups, ConAgra Foods announced Wednesday that it plans to split into two companies. A new entity called Conagra Brands will continue to serve up the likes of Chef Boyardee, Slim Jims and Orville Redenbacher's. The other, the frozen potato division Lamb Weston, will become its own publicly traded enterprise.

“The separation will enable each company to sharpen its strategic focus and provide flexibility to capitalize on the unique growth opportunities in its respective market,” CEO Sean Connolly says in a release announcing the deal. “Shareholders will gain direct exposure to more focused consumer and commercial foods businesses, each with distinct customer bases and investment profiles.”

Connolly, who joined the company this spring after last having served as CEO of Hillshire Brands prior to its sale last year to Tyson Foods, tells the Chicago Tribune’s Greg Trotter that “the spinoff shows ConAgra's commitment to re-energizing its core brands” — which also include Reddi-Wip, Hunt's, RO*TEL, PAM, P.F. Chang's and Healthy Choice — “while also developing new food that's healthier and has cleaner labels.”

ConAgra “recently introduced Peter Pan Simply Ground peanut butter to compete with the vast assortment of natural peanut butters now on grocery shelves,” Trotter points out, while in May it bought Blake's All-Natural Foods — a healthier sounding pot-pie option to its Marie Callender's brand. 

“While consumer tastes are ‘dynamic and ever-changing,’ the movement toward healthier food is ‘undeniable,’ Connolly tells Trotter, and the company will be “participating in that aggressively.” He will lead ConAgra Brands.

“The separation could also help Lamb Weston, as it can operate on its own, rather than being dragged into the consumer brand reinventions or any ‘chaos,’” as one agency source tellsAd Age’s Jessica Wohl, “that may occur in the coming months as the company restructures itself and moves to Chicago.” 

Con Agra’s foodservice business “has generally operated separately from Lamb Weston,” Wohl reports.  

Connolly tells Reuters’ Anjali Athavaley and Ramkumar Iyer that it “had explored various strategic options for Lamb Weston before deciding on the spinoff,” adding that “the move would give the resulting two companies more focus and individual management attention.”

“You don't have each business competing for the same resources if you're a stand-alone,” according to Connolly, they write.

Indeed, “this frees them up to focus on improving their brands,” Bloomberg Intelligence Michael Halen analyst tells Bloomberg Business’ Craig Giammona. “Their hands have really been tied.”

They also might  “divest slower-selling product lines like Chef Boyardee and Healthy Choice” or add new brands to the portfolio with funds from the sale of its private-label unit to TreeHouse Foods for about $2.7 billion last month. 

“They’re going to have the capital to do it,” says Halen. “It depends on how aggressive they want to get.”

Connolly, who has been under increased pressure since activist investor Jana Partners disclosed a 7.2% a stake in ConAgra in June and gained two board seats, “has said no option is off the table to ‘unlock’ the company’s value,” Barbara Soderlin reminds us in the Omaha World-Herald. ConAgra’s profitability has lagged its competitors’.

In a separate piece in the World-Herald, Russell Hubbard writes that spin-offs have been successful in general in recent years based on the Beacon Spinoff Index maintained by wealth adviser Beacon Partners. And Olav Sorenson, a professor at Yale University’s School of Management, thinks the deal will, over time, lead to higher sales and profits for both companies. 

“Anytime you’re trying to manage multiple types of businesses, it’s just more complex,” Sorenson tells Hubbard. “So being able to have management focus on a smaller range of activities generally helps performance.” 

But others maintain that “it isn’t clear that two ConAgras will be better than one,” as the Wall Street Journal’s Miriam Gottfried observes in a piece that says the move “doesn’t pave a clear path toward value creation for its investors.”

“The two businesses roughly correspond to separately managed divisions already. And while sales at the commercial foods segment — where frozen potatoes reside — have outpaced those at the consumer brands, they haven’t exactly been on a tear,” Gottfried writes.

On an up note, the separation — which is expected to close in the fall of 2016 — will be free of federal taxes for shareholders.