Ackman Investment Prompts Mondelez Sale Speculation

06 Aug 2015

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06 Aug 2015 --- Activist investor William Ackman of Pershing Square Capital Management has revealed that he has acquired a 7.5% stake in snacks giant Mondelez International, worth $5.5bn, prompting speculation that it could be sold or merged with another food company.

Ackman has said that the snacks giant, the third largest US food company, should grow revenues faster and cut costs, or sell itself to a rival. This may involve a merger with the newly formed Kraft Heinz company, one of the only businesses that would be able to afford it, say analysts. Mondelez and Kraft Foods were, until recently, intertwined. When Kraft bought the UK confectionery company Cadbury, it rebranded its snack business as Mondelez International and its US grocery business spun off to form Kraft Foods Group. Kraft merged with another US food giant, Heinz, earlier this year. That $55bn deal secured Kraft Heinz as one of the largest food companies in the world.

The investment company issued the following statement to announce the share acquisition:

“Pershing Square Capital Management, L.P. (PSCM), the investment manager for Pershing Square Holdings, Ltd., announced today that it intends to file a beneficial ownership report on Schedule 13D with the United States Securities and Exchange Commission to disclose the beneficial ownership (including forward purchase contracts and call options) of 120,265,238 shares of Mondelez International, Inc. (Mondelez) Class A common stock by funds that PSCM manages (including Pershing Square Holdings, Ltd.).

“The 120,265,238 shares represent a 7.5% stake in Mondelez. Pershing Square Holdings, Ltd.’s proportionate beneficial ownership is 47,769,767 shares (or approximately 3.0% of Mondelez’s outstanding shares).”

“We welcome Pershing Square as investors in our company,” a Mondelez spokeswoman said. “We’ll continue to focus on executing our strategy and on delivering value for all our shareholders.”

Changing consumer habits, including a move from traditional processed foods to more fresh, healthy products is causing a change in the US food industry. Large companies like Heinz and Campbell's are no longer making the profits they once were and growth is seen in the natural, healthy or organic areas. This is driving the industry into consolidation and cost-cutting.

Mondelez has suffered due to the strong US dollar, but it has managed to expand its business, largely due to a cost-cutting exercise and the ability to raise prices for overseas products. Shares in the company have risen 27% this year.

While Mondelez is keeping tight-lipped about the consequences of the investment by Ackman, there is further speculation that if a deal with Kraft Heinz were not on the cards, another potential buyer could be PepsiCo. Neither company have commented on the news.