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Activist investor targets Mondelez

Food company scrambles to transform amid shifting tastes favouring fresh food
8/6/2015

The maker of Oreo cookies may again be the target for a shakeup as "Big Food'' companies scramble to transform amid changing tastes.

Activist investor Bill Ackman's Pershing Square said it was paying about $5.5 billion and taking a 7.5 per cent stake in snack maker Mondelez International Inc. 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 shifting tastes that favour 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, faster-growing 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 at the time focused on the savings the deal would achieve, rather than the potential for sales growth. Heinz' owners, Warren Buffett's Berkshire Hathaway and the Brazilian investment firm 3G Capital, engineered the deal.

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

Ackman's Pershing Square Capital Management LP is buying about 120.3 million shares of Mondelez. He hasn't yet said what, if anything, he intends to urge the maker of Oreo cookies and Cadbury chocolate to do, but the stake raised the possibility of further deal-making among big packaged food makers.

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

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.

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

Mondelez's stock rose more than 5 per cent in Thursday premarket trading.

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