Billionaire Bill Ackman, who has made high profile bets on Procter & Gamble, Target and Herbalife among others, has acquired a $5.5 billion stake in snack company Mondelez (MDLZ), whose brands include Oreo cookies, Trident gum and Ritz crackers, becoming the company's largest shareholder.
The activist investor now owns more than 47 million shares, or a 7.5 percent stake, in Mondelez, through a combination of stock and option purchases through his Pershing Square Capital Management fund, according to a filing today with the Securities and Exchange Commission.
Pershing Square, which argues in the filing that the company's stock is "undervalued and an attractive investment," intends to engage in discussions with the company management and board of directors on a variety of issues "including, but not limited to, potential mergers, acquisitions, divestitures, or a sale of the Issuer."
Ackman, who declined to comment for this story, isn't in any rush to put Mondelez up for sale -- though that remains an option because he considers Irene Rosenfeld to be a "fantastic" CEO, according to a source familiar with the situation. The company's margins, though, lag its peers and could be better if Mondelez brands were better integrated, the source said.
The timing of Ackman's move has struck some observers as odd. For one thing, Wall Street, has been pleased with the company's performance of late and its stock has traded recently at an all-time high. Shares of the Deerfield, Illinois-based company have surged more than 27 percent this year, outperforming the S&P 500, which has barely budged. The stock traded up 67 cents, or 1.5 percent, to $46.96 in recent trading.
Mondelez CEO Irene Rosenfeld has also won kudos on Wall Street for reigning-in costs by shutting factories among other things. She has initiated an effort that the company expects to reduce expenses by $1.5 billion annually by 2017. In an interview with Bloomberg News in April, Rosenfeld noted that "we are starting to see a "virtuous cycle" that's "coming from the fact that we're managing our costs, which in turn allows us to expand margins and invest in growth." Even better in the eyes of investors are her plans buy back as much as $13.7 billion of Mondelez stock.
She also is no stranger to activist campaigns. Another billionaire investor, Nelson Peltz, joined the Mondelez board in 2012 after publicly criticizing the company's attention to costs. Peltz also is a huge stockholder in PepsiCo (PEP) and his efforts to get that company to split its beverage and snack business have gone nowhere. Peltz's Trian Fund Management didn't immediately respond to a request for comment for this story.
Ackman's move is the latest sign of the latest shake-up in the packaged food industry as consumers are increasingly avoiding foods they don't consider to be fresh and natural. As a result, companies such as Nestle, Campbell Soup and General Mills have announced plans to remove artificial flavors and colors from their products. Pressure on Mondelez's bottom line has also intensified in the wake of H.J. Heinz's $46 billion acquisition of Kraft Foods earlier this year.
Mondelez spun off its Kraft North American grocery business in 2012 and some analysts such as Christopher Growe of Stifel Nicolaus think they might rejoin one another. Merging with PepsiCo., the parent company of Lay's potato chips, is another possibility for Mondelez, he said.
"Recall also that Mr. Peltz has a stake in PepsiCo and recently appointed Bill Johnson, former CEO of H.J. Heinz, as his representative on the PepsiCo board," writes Growe, who rates Mondelez as a "hold", in a note sent to clients today "Mr. Peltz had to drop the recommendation of PepsiCo and Mondelez combining in order to earn his board seats at each company. 3G Capital purchased Heinz two years ago and most recently purchased Kraft. We too believe that 3G will have an interest in Mondelez (reuniting the old Kraft Foods) given its potential to cut costs even more significantly and to take advantage of its international growth prospects."
Kraft Foods and PepsiCo. couldn't immediately be reached for comment.