Trian Acquires Minor Stake in Kraft

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 - Analyst Report) 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 - Analyst Report), CBS Corporation (CBS - Analyst Report), Family Dollar Stores Inc. (FDO - Analyst Report) and Peet's Coffee & Tea Inc. (PEET - Analyst Report). 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%.

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