Bill Ackman has his next target in his sights. Ackman’s Pershing Square has accumulated a massive $5.5 billion stake in Mondelez International, the maker of Oreo cookies, Ritz crackers, Cadbury chocolates and dozens of other sweets and snacks. Analysts note that Mondelez is the largest target to date in the wave of mergers and acquisitions transforming the food industry.
Pershing Square Capital Management LP announced its slightly more than 7.5% stake (including options) in Mondelez in a statement late Wednesday. According to knowledgeable sources that spoke to the Wall Street Journal, the activist firm is arguing that Mondelez must grow revenues faster and slash costs or sell itself. Pershing confirmed the news in a press release issued shortly after the WSJ story.
The investment in Mondelez by Ackman is one of the largest ever by a shareholder activist firm, and is just the latest in a very busy couple of years for the $34 billion in annual revenue snack food firm. Mondelez spun off its former North American grocery business into Kraft Foods in late 2012, which then merged with ketchup giant Heinz to create Kraft Heinz in the first quarter of this year.
Carlson Capital's Double Black Diamond fund added 1.47% net of fees in May, taking its year-to-date performance to 5.2%, according to a copy of the fund's letter, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more Founded in 1993 by Clint Carlson, Carlson Capital has struggled to retain assets Read More
Statement from Mondelez
“We welcome Pershing Square as investors in our company,” a Mondelez spokeswoman commented on Wednesday evening. “We’ll continue to focus on executing our strategy and on delivering value for all our shareholders.”
Bill Ackman teaming up with Nelson Peltz on Mondelez campaign
Ackman’s move into Mondelez squeezes the food company between two major activist funds in Pershing Square LP and Trian Fund Management LP, co-founded by billionaire Nelson Peltz.
Keep in mind that Peltz has a long history with Mondelez CEO Irene Rosenfeld, having agitated earlier for the Kraft-Mondelez split. Peltz joined Mondelez BoD in January 2014 after another public campaign, this time to cut costs and merge with PepsiCo Inc. ’s snacks business. Peltz dropped the merger idea, which both Mondelez and PepsiCo had resisted, following his appointment to the board.
Knowledgeable sources say Ackman is on the same page as Peltz regarding the snack giant, and believes that Mondelez has many top brands in the high-margin snack sector. However, the sources noted that the two activists haven’t spoken about Mondelez.
“I think Bill is very bright and he recognizes value when he sees it,” Peltz noted on Wednesday when asked about Pershing’s new stake.
More on Ackman’s plan.
Sources with direct knowledge of the matter told ValueWalk, that Ackman had been building up a stake in what the hedge fund investor described as a mega cap – stable, high quality company which is also a likely acquisition candidate. Ackman has compared the position to Allergan but noted that he is not partnering with anyone, which implies that he is not spoken to Mr. Peltz.
In (somewhat) related news, earlier that Suvretta Capital Management, started by an ex- portfolio manager at Soros and Point 72/ SAC, Aaron Cowen has purchased a stake in Kraft. sources with direct knowledge of matter told ValueWalk that expects Suvretta 3G Capital to use the company as a platform to make more acquisitions; one clear possibility is a Kraft and Mondelez merger.
In an initiation report on Kraft issued on July 21st 2015, RBC Capital opined that a Kraft and Mondelez merger would make sense. RBC wrote:
The (Heinz) merger with Kraft actually strengthens the combined company’s balance sheet and puts it in a position to acquire another large food company – perhaps as early as late 2016 or 2017. We estimate Kraft Heinz will likely start 2017 with a net debt/EBITDA ratio of 3.1x and the ability to issue stock to acquire another large company.
In our view, Kraft Heinz’s biggest need will be international – particularly developing market-scale in non temperature controlled distribution. We believe Outperform-rated Mondelez could represent the best chance for Kraft Heinz to achieve this scale. Furthermore, a purchase of Mondelez would give Kraft international distribution synergies as the majority (70%+) of Kraft’s international brand rights are licensed to Mondelez through 2022. We believe that about $1B of Mondelez net revenue (~3% of total) comes from licensed Kraft brands.