Why This Spinoff Doesn't Make Sense

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The following video is part of our "Motley Fool Conversations" series, in which consumer-goods editor and analyst Austin Smith and industrials editor and analyst Brendan Byrnes discuss topics around the investing world.

In today's edition, Austin and Brendan talk about Sara Lee's (NYS: SLE) announcement to split into two divisions. There are legitimate bull and bear cases to be made on either side, but Austin isn't a fan. Sara Lee seems to be parroting a similar move by Kraft (NYS: KFT) to split into two companies, which also seems less than ideal. Both companies are giving up significant synergies under the belief that they'll be able to make it up with more focused divisions. The problem is, both of these companies are spinning off major coffee labels, but neither one has the brand strength or positioning to compete with the already entrenched Starbucks (NAS: SBUX) . Austin would rather see them stay in the same wheelhouse and realize what synergies and economies of scale they can.

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At the time this article was published Austin Smith and Brendan Byrnes have no positions in the stocks mentioned above. The Motley Fool owns shares of Starbucks.Motley Fool newsletter services recommendGreen Mountain Coffee Roasters and Starbucks. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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