Oreo-maker latest ‘Big Food’ com­pany tar­geted


The maker of Oreo cook­ies may again be the tar­get for a shake-up as “Big Food” com­pa­nies scram­ble to trans­form amid chang­ing tastes.

Ac­tivist in­vestor Bill Ack­man’s Per­sh­ing Square said it took a 7.5 per­cent stake in snack maker Mon­delez In­ter­na­tional Inc. that was worth about US$ 5.5 bil­lion. The dis­clo­sure comes as Mon­delez, which also makes Ritz crack­ers, Cad­bury choco­lates and Tri­dent gum, had al­ready been slash­ing costs to off­set weak growth.

Such cost-cut­ting has be­come com­mon for ma­jor pack­aged food com­pa­nies, which are up against volatile eco­nomic con­di­tions over­seas and shift­ing tastes that fa­vor foods mar­keted as fresher or more nat­u­ral. To ap­pease in­vestors, com­pa­nies in­clud­ing Camp­bell Soup, Coca-Cola, Gen­eral Mills, Kel­logg and Pep­siCo have said they would trim costs and free up more money for mar­ket­ing, which is in­tended to drive up sales of their flag­ship brands.

The strug­gles have also led a flurry of cor­po­rate restruc­tur­ing and deal-mak­ing that is re­shap­ing the in­dus­try. That has in­cluded ac­qui­si­tions of smaller, faster­grow­ing com­pa­nies, as well as con­sol­i­da­tion among big play­ers in­tended to fur­ther re­duce costs by com­bin­ing func­tions like man­u­fac­tur­ing and dis­tri­bu­tion.

In March, H.J. Heinz Co. said it would buy Kraft Foods and cre­ate one of the world’s largest food and bev­er­age com­pa­nies. The early plans out­lined by ex­ec­u­tives fo­cused on the sav­ings the deal would achieve, rather than the po­ten­tial for sales growth. The deal was en­gi­neered by Heinz’ own­ers, War­ren Buf­fett’s Berk­shire Hath­away and the Brazil­ian in­vest­ment firm 3G Cap­i­tal, which has be­come known for its cost-cut­ting man­age­ment style.

The cre­ation of

Kraft Heinz came af­ter Mon­delez had split from Kraft Foods in late 2012, a move that was in­tended to al­low each com­pany to work with a more fo­cused port­fo­lio of brands. Mon­delez took the snacks like Oreo and Chips Ahoy, while Kraft Foods held onto North Amer­ica gro­cery brands like Jell-O and Os­car Mayer.

Be­cause of the in­ter­na­tional ap­peal of its snacks and cho­co­late, Mon­delez was seen as be­ing buffered to a de­gree from the chal­lenges fac­ing many big food com­pa­nies back in the U.S. But CEO Irene Rosen­feld con­ceded the com­pany made some early mis­steps af­ter its sep­a­ra­tion from Kraft, which led to dis­ap­point­ing fi­nan­cial re­sults.

Last month, how­ever, Mon­delez said it was mak­ing progress on its cost re­duc­tions and re­ported sales and profit that topped Wall Street es­ti­mates.

The moves may nev­er­the­less seem in­ad­e­quate com­pared to the cuts oth­ers have made. San­ford C. Bern­stein an­a­lyst Alexia Howard said in a re­cent note that while Mon­delez’s mar­gin ex­pan­sion goal was im­pres­sive in 2013, it now seems “pal­try” com­pared with what Heinz achieved un­der the lead­er­ship of 3G and Berk­shire.

In a reg­u­la­tory fil­ing Thurs­day, Ack­man’s Per­sh­ing Square Cap­i­tal Man­age­ment also said it thinks Mon­delez’s stock is un­der­val­ued, and that it in­tends to “en­gage in dis­cus­sions” with the com­pany on mat­ters such as its strate­gic plans, which in­clude “po­ten­tial merg­ers, ac­qui­si­tions, di­vesti­tures, or a sale” of the com­pany.

That raised the pos­si­bil­ity of fur­ther deal-mak­ing in the food in­dus­try.

“We sus­pect Mr. Ack­man’s pri­mary goal is to have Mon­delez sold,” J.P. Mor­gan an­a­lyst Ken Gold­man wrote in a note to in­vestors.

While he wouldn’t say it is im­pos­si­ble, Gold­man said he had reser­va­tions about the prospect of a tie-up with Kraft Heinz, in part be­cause Kraft Heinz “is only in the first in­ning of one of the largest in­te­gra­tions in pack­aged food history.”

A rep­re­sen­ta­tive for Mon­delez, Va­lerie Moens, said the com­pany wel­comes Per­sh­ing Square as an in­vestor.

“We’ll con­tinue to fo­cus on ex­e­cut­ing our strat­egy and on de­liv­er­ing value for all share­hold­ers,” she said in an emailed state­ment.

Rep­re­sen­ta­tives for Kraft Heinz and Per­sh­ing Square de­clined to com­ment. Per­sh­ing Square Cap­i­tal Man­age­ment LP said it owns 5.5 mil­lion shares and op­tions cov­er­ing 114.8 mil­lion more shares of Mon­delez. Ack­man’s stake in Mon­delez was first re­ported by The Wall Street Jour­nal.

Ack­man is not the only ac­tivist in­vestor with a stake in Mon­delez. Nel­son Peltz’s Trian Fund Man­age­ment LP holds a 3.1 per­cent stake in the Deer­field, Illi­nois­based com­pany, ac­cord­ing to Fac­tSet. Peltz is a Mon­delez board mem­ber.

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