Financier Nelson Peltz may not have gotten everything he wanted in his showdown with ketchup king H.J. Heinz (HNZ). But the billionaire investor managed to make his point.
On Aug. 16, Peltz's Trian hedge fund said that it believes it won multiple seats on the Heinz board, based on preliminary results from a shareholder vote. "We're going to win seats," Peltz said after the company's annual meeting.
Trian had sought to place five of its dissident candidates on the Heinz board, which currently includes 12 members. The final results of the vote won't be known until Sept. 15, when Trian likely will claim two positions on the board. At the same time, the board is expected to expand to 14 members.
Obviously, those seats won't give Trian control of the company, which has been assailed for the lackluster performance of its stock (see BusinessWeek.com, 6/30/03, "Drooling Over Heinz"). But they will be more than a condiment. Management already has agreed to work with any dissident members elected to the board. "Regardless of the outcome, we will move forward constructively and with optimism," Heinz CEO William Johnson said in a statement.
Johnson is also going along with some of Trian's demands, including cost cutting and refining of the business portfolio. Heinz has been selling businesses in Europe and revealed plans on June 1 to cut costs by $265 million and buy back $1 billion worth of stock.
The long-suffering shares have increased to $41, from $34 before Trian emerged on the scene. And the company's results for the latest quarter indicate that revenue is growing at a rate of 7%, reflecting a ramp-up in marketing.
Analyst David Nelson of Credit Suisse said the battle has been constructive, though Trian's goals were too aggressive. "We credit Trian for its activism, which has boosted share price and called attention to company weaknesses," Nelson said in a report.
Analyst Christopher Growe of A.G. Edwards said the battle will be good for Heinz shares, at least in the short run. Like Nelson, he argued that Heinz management had a more realistic sense of how fast the business can be expanded, though. He said that the Heinz plan focused on cutting the cost of goods sold, while Trian focused more on cutting huge amounts from the selling, general, and administrative expense budget. "Firing every salaried employee still would not produce the $400 million in SG&A savings that stood as the central theme of the Trian plan, casting some doubt on its legitimacy," Growe said.
Peltz's victory will likely mean more changes for the company. Growe predicts there will be more divestitures and more aggressive buybacks of the company's stock.
In that sense, the vote at the annual meeting is more of a beginning than an end. "We do believe Mr. Peltz picked the right target in Heinz, which remains inefficient, slow-growing, inconsistent, and in need of further restructuring,"Growe says.
With dissidents on its board, Heinz's management will remain under plenty of pressure. Just last February, Time Warner (TWX) reached a truce with billionaire shareholder activist Carl Icahn. But Time Warner shares have declined, and the company faces a likely second fight if the shares aren't boosted within the next half year or so (see BusinessWeek.com, 8/14/06, "Carl Icahn Increases Time Warner Stake").
Heinz management could be in the same position next year if the company fails to maintain the momentum gained during the summer. There's plenty of cash in the coffers of private equity firms. And a lot of it is being directed toward consumer brands such as Heinz (see BusinessWeek.com, 7/5/06, "Private Equity Takes a Shine to Retail").