What is a Reverse Morris Trust (RMT) transaction?

A Reverse Morris Trust transaction is a tax-efficient method for a company to spin off a business unit. It typically involves contributing the business unit to a newly formed subsidiary, distributing the subsidiary's stock to the parent company's shareholders, and then merging that subsidiary with an unrelated company. This structure allows the spin-off to be treated as a tax-free event for the shareholders receiving the stock.

What happens to the debt incurred by Kraft Global ($300 million)?

The $300 million debt incurred by Kraft Global is part of the RMT transaction. The proceeds from this debt, along with other securities issued by the spun-off entity, are intended to be used by Kraft Foods (the parent company) to repay its existing debt obligations. Ultimately, this debt will become an obligation of Ralcorp following the merger.

What is the significance of the Post cereals business being combined with Ralcorp?

This transaction represents a strategic divestiture for Kraft Foods, allowing it to focus on its core brands by separating the Post cereals business. For Ralcorp, it signifies a significant expansion by integrating a well-known cereal portfolio. The combined entity aims to create shareholder value through this strategic alignment.

When is this transaction expected to be completed?

This 8-K filing was made on November 20, 2007, and the transaction was subject to customary closing conditions, including regulatory approvals and shareholder approval from Ralcorp. The exact closing date would have been determined by the satisfaction of these conditions, which are not specified in this particular filing.

MDLZ 8-K: Material Agreements

Summary

This Form 8-K filed by Kraft Foods Inc. (the predecessor to Mondelez International) on November 20, 2007, details a significant strategic transaction. The company announced its entry into a Reverse Morris Trust (RMT) transaction agreement to combine its Post cereals business with Ralcorp Holdings, Inc. This move is designed to be tax-efficient and will result in Kraft Foods shareholders ultimately owning approximately 54% of the combined entity, Ralcorp, while existing Ralcorp shareholders will own approximately 46% on a fully diluted basis. The transaction involves several steps, including the transfer of Kraft's U.S. cereal assets and liabilities to a newly formed subsidiary (Splitco), which will then merge with a Ralcorp subsidiary. Kraft intends to distribute the shares of Splitco to its own shareholders, who will then receive shares of Ralcorp common stock. The RMT transaction also involves a debt component, with Kraft Global incurring $300 million in debt, the proceeds of which, along with other securities, will be used by Kraft Foods to repay its own debt obligations. This strategic divestiture aims to streamline Kraft's portfolio and unlock value for shareholders by separating the cereal business.

Key Highlights

1Kraft Foods Inc. entered into a Reverse Morris Trust (RMT) transaction agreement to combine its Post cereals business with Ralcorp Holdings, Inc.
2The transaction is structured to be tax-efficient, allowing for a tax-free spin-off or split-off of the cereal business to Kraft shareholders.
3Upon completion, Kraft Foods shareholders are expected to hold approximately 54% of the combined Ralcorp entity, with Ralcorp shareholders holding approximately 46%.
4Kraft Global will incur $300 million in debt to fund the transaction, with proceeds intended to be used by Kraft Foods to repay its own debt.
5The combined entity will operate under the Ralcorp name, and the RMT debt will ultimately become an obligation of Ralcorp.
6Consummation of the transaction is subject to customary closing conditions, including regulatory approvals (HSR, Competition Act of Canada) and Ralcorp shareholder approval.

Mondelez International, Inc. 8-K Report, Material Agreement (Nov 20, 2007)

Summary

Key Highlights

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