High-profile activist investor William Ackman has built a $5.5
billion stake in Mondelez International Inc., a giant bet that the
maker of Oreo cookies and Ritz crackers will become the biggest
target in a wave of consolidation reshaping the food industry.
Mr. Ackman's Pershing Square Capital Management LP revealed its
stake, which amounts to about 7.5% including options and forward
contracts, in a statement late Wednesday night. The activist
believes Mondelez has to grow revenues faster and cut costs
significantly, or sell itself to a rival, according to people
familiar with the matter.
With a $75.6 billion market value, there are few companies that
could afford Mondelez. One potential buyer, the people said, could
be the newly formed Kraft Heinz Co., which has a $97.6 billion
market cap. A spokesman for Kraft Heinz declined to comment.
"We welcome Pershing Square as investors in our company," a
Mondelez spokeswoman said. "We'll continue to focus on executing
our strategy and on delivering value for all our shareholders."
The investment, one of the biggest ever by an activist,
represents the latest in an array of dizzying turns for the snacks
company, whose $34 billion in annual sales makes it one of the
world's biggest packaged-food producers. In 2012, Mondelez spun off
its former North American grocery brands business into Kraft Foods
Group Inc., which itself was gobbled up this year to form Kraft
Heinz.
Were a sale to materialize, it would be one of the biggest in a
string of mergers in the food industry in the past two years that
also has included Tyson Foods Inc.'s $7.7 billion acquisition of
Hillshire Brands Co.
The drive to consolidate big U.S. food companies comes as they
wrestle with rapid shifts in consumer tastes that are hampering
sales growth. Shoppers increasingly are shunning traditional
packaged foods in favor of products that are fresher and claim
simpler, more natural ingredients.
A sale to Kraft Heinz would recombine Mondelez and its former
Kraft unit in a remarkable circle of corporate rearrangement. It
would reinforce the influence in the industry of private-equity
firm 3G Capital Partners LP, which acquired control of Heinz in
2013 and was the architect of the Kraft-Heinz merger that closed
last month. 3G also bought Burger King in 2010 and last year merged
it with Canada's Tim Hortons. Mr. Ackman personally invests in 3G
funds, but he hasn't discussed the Mondelez investment with 3G, the
people said.
Mr. Ackman's arrival in Mondelez squeezes the food company
between two of the heaviest hitters in the field, his Pershing
Square LP and Trian Fund Management LP, co-founded by Nelson
Peltz.
Mr. Peltz has a long history with Mondelez Chief Executive Irene
Rosenfeld, having pressed for the Kraft-Mondelez split. Mr. Peltz
became a Mondelez director in January 2014 as part of a truce after
another public campaign, this time for it to cut costs and merge
with PepsiCo Inc.'s snacks business. When he joined the board, Mr.
Peltz dropped the merger push, which both Mondelez and PepsiCo had
rebuffed.
Mr. Ackman has similar ideas for the Deerfield, Ill.-based snack
giant and believes that Mondelez has dominating brands in the
high-margin snack business, the people familiar with his investment
said. The two activists haven't spoken about Mondelez, the people
said.
"I think Bill is very bright and he recognizes value when he
sees it," Mr. Peltz said Wednesday.
PepsiCo, whose food business includes Frito Lay and Quaker
Foods, is another potential buyer of Mondelez, according to people
familiar with the matter. A spokesman for PepsiCo declined to
comment.
While a tie-up with Kraft Heinz could be seen as an about-face
for Mondelez, the theory is that Kraft's new management, 3G, brings
a more aggressive focus on costs.
Cutting costs is considered 3G's specialty, and it has put
pressure on the rest of the food industry, including Mondelez.
Analysts have speculated it would try to roll up more food
companies. Bernstein analyst Alexia Howard wrote in a research note
last week that one possible scenario is for Kraft Heinz to acquire
General Mills Inc. first, then Mondelez.
The Brazilian private-equity fund has been joined by veteran
investor Warren Buffett on deals including the Heinz buyout and the
Burger King-Tim Hortons merger. Mr. Ackman's Pershing Square owns a
large stake in the company created by Burger King-Tim Hortons.
Mr. Peltz has already been pushing aggressive cost cuts at
Mondelez. A month after he joined the board, it said it had adopted
a cost-cutting tool favored by 3G known as zero-based budgeting,
which requires managers to justify all costs every year instead of
working off the prior year's spending. Mondelez also has closed
underused factories and invested in new, more efficient ones aimed
at lowering future costs.
Though Mondelez continues to get hit by external factors like
the stronger U.S. dollar, cost cuts and an ability to raise prices
for its products overseas enabled its adjusted operating margin to
expand by 2.7 percentage points in the latest quarter, topping
expectations. Its shares have risen 27% this year, far outpacing
major indexes and most rivals. The stock is up 65% since the Kraft
split.
Activists, who buy shares and push for changes they believe will
boost the stock price such as breakups, buybacks and cost cuts,
have gathered larger war chests in recent years on the back of
growing successes.
As a result, they're taking on bigger targets. Trian earlier
this year waged an unsuccessful battle for board seats at chemical
giant DuPont Co. Jana Partners LLC in April disclosed a more than
$2 billion stake in chip maker Qualcomm Inc., which has a market
capitalization of more than $100 billion, and in June announced it
had taken a 7.2% stake in packaged-foods giant ConAgra Foods Inc.
and called for the company to shed its private-label foods
business.
Pershing Square and Trian are two of the biggest and best known.
Pershing Square now manages over $20 billion and sold $1 billion in
bonds this year that was to help with its next big investment,
according to filings. Trian, which itself has said it has two new
large investments in the works, has roughly $12 billion in
investible assets.
Assets of the two firms combined would rival roughly what the
entire activism industry managed in 2008, according to industry
researcher HFR.
The presence of multiple activists in the same company isn't
uncommon. Last year, Mr. Peltz's partner, Ed Garden, endured some
parallel activism in Family Dollar Stores Inc. from Elliott
Management Corp., which questioned the deal reached to sell the
company to Dollar Tree Inc., which Mr. Garden helped seal as a
Family Dollar director.
Write to David Benoit at david.benoit@wsj.com, Liz Hoffman at
liz.hoffman@wsj.com and Annie Gasparro at
annie.gasparro@wsj.com
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