Trian Acquires Minor Stake in Kraft - Analyst Blog
June 29 2011 - 11:33AM
Zacks
According to the SEC filing, the billionaire investor Nelson
Peltz’s hedge fund - Trian Fund Management has acquired 12.2
million shares of Kraft Foods Inc. (KFT) for
$381.9 million during the first quarter of 2011.
Trian is based in New York and its stake of 12.2 million shares
represents about 0.7% of shares outstanding. Kraft has 1.7 billion
shares outstanding. Further, Trian is currently the largest
shareholder of Wendy's/Arby's Group Inc., and also owns stakes in
Tiffany & Co. (TIF), CBS
Corporation (CBS), Family Dollar Stores
Inc. (FDO) and Peet's Coffee & Tea
Inc. (PEET). Besides Trian, Warren Buffett's
Berkshire Hathaway Inc. (BRK) owns about a 6%
stake in Kraft.
Peltz had also acquired a 3% stake in Kraft earlier in 2007 and
enforced significant changes in the company. Kraft also added two
board members backed by Peltz in 2007 and signed a standstill
agreement with Trian, which agreed to support the board's full list
of nominees at Kraft's next two annual meetings. However, Peltz
sold his stake in Kraft in August 2010.
During that period, Kraft also bought England-based Cadbury Plc
for about £13.6 billion ($21.3 billion) in cash and stock. The
acquisition transformed Kraft into the world’s biggest confectioner
from the maker of Velveeta cheese.
Recently, Kraft invested approximate ly $200 million for expansion in
Brazil, out of which $80 million was invested in a manufacturing
facility that is initially expected to produce chocolate and
powdered beverages. The company also expects to add a biscuit line
by fiscal 2012.
Kraft posted first quarter 2011 operating EPS of 52 cents per
share in May 2011, which was well above the Zacks Consensus
Estimate of 47 cents, owing to the benefits of increased
investments behind the Power Brands, strong productivity and
disciplined cash management. Also Kraft is said to have been making
good progress in capturing the synergies from the Cadbury
acquisition.
Kraft is stated to inspire confidence from the belief of
continuing strong business momentum in the ch allenging environment of weak
consumer and category growth as well as significant input cost
inflation.
The confidence is thus reflected in its 2011 outlook and the
company expects to have an organic net revenue growth of at least
5%, or roughly 4% after excluding the impact of accounting calendar
changes. Management expects the operating EPS growth in the range
of 11-13%.
We believe, over the past four to five quarters, the strong
dollar and volatile commodity markets, especially dairy, had
affected the top and bottom lines of the company. However, the
company has implemented several turnaround plans to increase
profitability, and revive organic growth.
Kraft has also strengthened its business model by increasing
investments in promotion and marketing that increased its pricing
power and improved product positioning. These initiatives are
paying off now, and margins are improving.
Furthermore, the combination of Kraft and Cadbury is expected to
provide meaningful revenue synergies. The combined company expects
long-term organic net revenue growth of more than 5%.
CBS CORP (CBS): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
PEETS COFFE&TEA (PEET): Free Stock Analysis Report
TIFFANY & CO (TIF): Free Stock Analysis Report
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