Ackman targets maker of Oreos, Ritz crackers

Activist investor William Ackman's New York-based hedge fund has amassed a $5.5 billion investment in snack food giant Mondelez International (MDLZ), signaling that the maker of Oreo cookies, Ritz crackers and other popular brands could be an acquisition target amid food industry consolidation.

Shares of Deerfield, Ill.-based Mondelez were up 0.9% at $46.70 in Thursday afternoon trading after the announcement by Ackman's Pershing Square Capital Management L.P.

The hedge fund said late Wednesday it plans to notify the Securities and Exchange Commission that it has taken a 7.5% stake in Mondelez, including forward purchase contracts and call options, amounting to more than 120 million shares.

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

Pershing Square wants Mondelez CEO Irene Rosenfeld to dramatically improve margins, or the difference between the cost to sell a product and the revenue it produces, according to two people with detailed knowledge of the hedge fund's plan for the snack food maker. They asked not to be identified because they were not authorized to speak publicly.

Last year, Mondelez reported margins of roughly 12%. Amid pressure from Ackman’s friend and fellow hedge fund investor, Nelson Peltz, who became a Mondelez director in Jan. 2014, Rosenfeld has vowed to target operational income margins of 15% to 16% by 2016.

But Ackman’s Pershing Square thinks margins at Mondelez could move even higher, one of the persons familiar with the hedge fund's planning said.

Ackman is also open to an acquisition of  Mondelez, the people familiar with the hedge fund's plans said.

Morningstar financial analyst Erin Lash separately theorized Thursday that Warren Buffett's Berkshire Hathaway and private equity firm 3G Capital could ultimately emerge as potential corporate suitors for Mondelez, either individually or as partners.

"I think there is a potential for this, down the road," she said.

Indeed, Berkshire and 3G Capital own Kraft, which spun off its snack food business in Oct. 2012, forming Mondelez International. This year, 3G and Buffett engineered a merger of Heinz with Kraft Foods Group.

Ackman's Pershing Square has also partnered with 3G before in taking Burger King private. And Ackman’s plans for how Mondelez could improve margins have been influenced by 3G, which pushed Heinz's margins up to 22% in just one-and-a-half years, one of the persons familiar with the matter said.

Ackman also likes Mondelez’s prospects for potential growth in emerging markets, like China, India, Russia and Latin America, the person said.

In July, Peltz also underscored Mondelez’s opportunities overseas, saying: “I think there's a big consumer opportunity in China. I think companies like Mondelez are taking advantage of it. And no matter where the market goes in China, people are going to be eating more and more Oreos in China, and that makes me feel good.”

With more than 1.6 billion shares outstanding as of July 24, Mondelez has an estimated market cap of nearly $75.6 billion. That massive size could limit the players in another potential scenario — a corporate takeover.

The newly combined Kraft Heinz has moved to cut billions of dollars in operating costs and achieve other savings, an effort that could affect Mondelez and other food industry competitors.

In a Thursday report, Lash characterized Mondelez's own recent cost-cutting efforts as "prudent." But her report contended "there is significantly more upside in its results than management's guidance or market estimates suggest."

"It appears Ackman shares our take," wrote Lash.

If Mondelez were to be purchased by a rival firm like Kraft Heinz, it would move full circle from where it was before it was formed, in 2012, through the Kraft spin-off. Peltz, meanwhile, had pushed Mondelez to pursue a merger with Pepsi, which sells Tostitos and Lays potato chips, before he joined Mondelez’s board.

The Mondelez investment is the latest in a series of major investments by the high-profile Ackman. He placed a $1 billion bet in 2012 that shares of Herbalife would decline on the theory that the global nutrition company is a pyramid scheme — an allegation the company has repeatedly denied.

In June, Pershing Square disclosed a 21.7% stake in Nomad Foods, a Virgin Islands-based special purpose acquisition company that confirmed it was in early stage discussions with the Findus Group, one of Europe’s largest frozen food and seafood companies. Nomad said the talks focused on plans to acquire the Findus Group's continental Europe business and the Findus brand.