Kellogg Names Mackay CEO, Replacing Jenness

Kellogg Names Mackay CEO, Replacing Jenness

Kellogg Co. Monday promoted President and Chief Operating Officer David Mackay to Chief Executive, replacing Jim Jenness, who will continue to serve as chairman and a director at the cereal maker.

Mackay, 51 years old, will succeed former advertising man Jenness - CEO for just two years - on Dec. 31. No reason was given by the Battle Creek, Mich., food company for the change.

Kellogg said it wouldn't fill the roles of president and chief operating officer when Mackay moves up. Those were new positions awarded him in 2003 when he was promoted from executive vice-president and president of Kellogg USA. He joined Kellogg in Australia in 1985.

Jenness, 60, succeeded Carlos Gutierrez, who left Kellogg to join the Bush administration as Commerce secretary. The appointment of Jenness, a Kellogg board member and former marketing executive, surprised some investors, who had expected Mackay might be named as Gutierrez's successor.

"Apparently they felt he (Mackay) needed a little more seasoning," food industry analyst John McMillin of Prudential Financial said. "Gutierrez left kind of quickly, but sometimes when the team is winning you don't want to change the line-up," he added.

But McMillin said he was once again surprised by the timing of Monday's succession disclosure. "This was an announcement I expected about a year or so from now."

Mackay - an Australian who pronounces his name Ma-KEYE - is widely credited with envisioning and implementing Kellogg's "volume to value" strategy which emphasized value-added, high-margin products rather than simply selling more corn flakes than competitors.

Shares of Kellogg were recently priced at $49.73, up 34 cents, or 0.7%, with 574,500 shares traded on the New York Stock Exchange. The average daily volume is 1.2 million.

Analysts applauded Mackay's promotion.

"David Mackay is very well liked by the investment company and loved internally," said Timothy Ramey at D.A. Davidson & Co.

Ramey said he was among those who thought Mackay would have succeeded Gutierrez two years ago, partly because Jenness "was an unknown quantity to me."

The analyst said he also was concerned that Mackay might become frustrated and leave Kellogg for another offer. "The risk was that he wouldn't stick around to see how it (the strategy) played out."

A.G. Edwards & Sons analyst Christopher R. Growe said that retaining two key executives - international president John Bryant and North America chieftain Jeff Montie - "will be important factors in maintaining the momentum" at Kellogg. Anticipating a "relatively smooth transition," Growe said he doubts that the incoming CEO will make any material management changes near-term.

Growe has a buy rating on the stock, as does Ramey. McMillin of Prudential rates Kellogg overweight.

None of the analysts owns shares of Kellogg, but A.G. Edwards received non-investment banking compensation from Kellogg within the past 12 months.

Letters to Mackay and Jenness, filed by Kellogg with the Securities and Exchange Commission Monday in connection with the announcement, showed that Mackay will be paid a $1.1 million base salary and is eligible for a long-term incentive program target award of $6 million for next year.

Kellogg's letter to Jenness disclosed that the chairman has decided "not to receive the compensation commensurate with the role" of chairman, "despite the time and effort required to fulfill the responsibilities" of that job.

No explanation of that decision was given other than that it was the executive's. The letter did allude to his "affection for and commitment to Kellogg Co. and its shareholders."

Before being named CEO in 2004, Jenness had been chief operating officer at Kellogg's long-time advertising agency, Leo Burnett Co., where one of his first assignments, in 1974, was to work on the Special K cereal account.