Good morning my dear readers,

Wish you a very happy weekend.

Today, lets learn about a pretty interesting spin off of a 'Cereal Company' which happened in the US in 2012.

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Pictures can give information of a thousand words, hence I started off with its 'since spin off' stock chart.

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Ralcorp / Post Holdings Demerger.

In a nutshell:

In 2012, Ralcorp spun off its branded cereals business as Post Holdings. Following the spin-off, Post Holdings pursued aggressive acquisitions and became a major player in the packaged foods industry.

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Lets learn why it demerged and what happened over the next 5 years..

The usual fallacy:

Fallacy - a mistaken belief, especially one based on unsound arguments.

The management of the combined entity Ralcorp believed that Ralcorp had the 'better' private label business and that Post Holdings was 'holding it back' as Cereals was a very tough business.

They believed that the Cereals market was stagnant.

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But under the leadership of its new, independent CEO, Post Holdings embarked upon a strategy of diversification and growth through acquisitions.

Independence and Free Thinking.

Independence, away from the suffocating atmosphere of a conglomerate, gives birth to innovative new thinking and energy in Spin offs, according to me.

The CEO diversified Post Holdings from Cereals into Protein Bars, Eggs and Packaged Foods via 3 acquisitions.

(This may not have been possible under the umbrella of a conglomerate).

This diversification strategy helped Post Holdings offset the challenges in the branded cereal market and achieve significant growth over the coming years..

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The acquisition of Michael Foods, which was a leading player in Cheese, Eggs and Dairy was the most successful for Post Holdings.

This acquisition gave many things to Post Holdings, but most importantly, it gave 'Distribution Channels'.

After this acquisition, 'Post' has been able to grow consistently via organic and bolt on smaller acquisitions.

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Conclusion:

I think Special Situations like Spin Offs give fresh perspective to companies, especially if the management is given incentives post Spin Off.

Think about it, if we shed excess weight, we end up becoming more agile and fresh.

A conglomerate structure adds 'age & weight' to a company and when they go for 'simplifying the structure' via demergers, it has the opposite effect on companies and their managements.

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Doing research, going through so many case studies, I am personally surprised myself on the number of successful spin offs throughout history.

I know, I am writing this newsletter for the betterment of the investor community but the more I write, its like I am benefiting the most due to the research work I am having to do, which otherwise I probably would not have done.

Strange.

Anyways, have a great weekend ahead my friends. See you Monday.

My Best,

Neil Bahal

Founder

Negen Capital PMS / AIF