Nelson Peltz from Trian Fund Management repeated his idea for a merger between PepsiCo, Inc. (NYSE:PEP) and Mondelez International Inc (NASDAQ:MDLZ) in his latest quarterly letter. Earlier we updated our readers on Peltz’s thoughts on Legg Mason Inc (NYSE:LM). The fund took losses in its short portfolio and was also down in its long positions in Lazard Ltd (NYSE:LAZ), Mondelez International Inc (NASDAQ:MDLZ) and Legg Mason Inc (NYSE:LM) in the second quarter.
The fund established new positions in the last quarter while exiting several unnamed ones, which we will bring to you as soon as Trian files a 13F in a couple of days. Some closed out positions that Trian talks about in the quarterly letter are exits from Danone SA (OTCMKTS:DANOY) (EPA:BN) and State Street Corporation (NYSE:STT) while reducing position in Family Dollar Stores, Inc. (NYSE:FDO) and Ingersoll-Rand PLC (NYSE:IR). Additionally the fund initiated a new large position which remains secret, and this stock was apparently bought through a newly raised $550 million fund.
Nelson Peltz on upcoming Ingersoll-Rand spin-off
Ingersoll-Rand PLC (NYSE:IR) is set to spin-off its security business by the end of this year, and the new entity will go by the name of Allegion. Peltz thinks that Allegion and Ingersoll-Rand will both be two attractive public companies. Peltz wrote, “We also believe both companies will benefit from positive data that continues to come out of the North American construction markets … Our focus for IR remains margin optimization, as the underlying drivers of the business, residential and non-residential construction, continue to improve.”
Nelson Peltz on Pepsi and Mondelez
Peltz reiterated his respect for PepsiCo, Inc. (NYSE:PEP)’s management and said that his firm has maintained a constructive relationship with them since 2008. Peltz has been pushing for Pepsi to buy Mondelez to compensate for its own underperforming snacks business. However in the recent earnings call, Hugh Johnston, CFO at Pepsi, quashed the notion saying that there is no support for this kind of merger or buyout. Peltz remains undeterred and says that he hopes the company reconsiders its position. Trian also put forward another proposal in the letter, which pushes for the separation of the company’s beverage and snacks business.
Nelson Peltz on Family Dollar
Nelson Peltz discusses his views on Trian’s investment in Family Dollar Stores, Inc. (NYSE:FDO), and says that the market is not pricing in the company’s ability to generate cash flow which bodes well for a better dividend policy and share buybacks in future. Trian has profited from the position through the year and expects further upside. He says that the company regained its margin growth in the second quarter earnings, which has boosted investor confidence. Further movers for Family Dollar would come from the company increasing its store base to double, an increase in discretionary sales and an accelerated roll out of consumables.
Peltz says that this is a great year for activist battles, and the time is especially ripe for M&A opportunities in conglomerates. These large and complex companies have an oversized structure which makes them incur excessive overhead charges, so the conglomerates offer many chances of activist plays.