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TheStreet Open House

Relational's Whitworth Confirms Behind the Scenes Efforts At Mondelez

Stocks in this article: MDLZ HPQ

NEW YORK (TheStreet) - Ralph Whitworth of hedge fund Relational Investors said on Tuesday he is working behind the scenes on changes to snacks giant Mondelez (MDLZ - Get Report) after the company took Nelson Peltz of Trian Management onto its board in early 2014.

Whitworth's comments came at the IMN Active-Passive Investor conference in Midtown Manhattan and indicate that if Mondelez doesn't improve its performance, activist pressure may increase.

"They don't have a lot of time to show some traction. If they don't I would expect some change," Whitworth said after confirming that the investment fund is working on change proposals. He did not specify what changes Relational is considering.

At the IMN conference, Whitworth also presented his analysis of why Relational believes Timken (TKR) remains undervalued, and why there may be large upside to SPW Corp SPX. Relational believes Timken has about $1.7 billion in excess liquidity on its balance sheet that can be deployed in a large stock buyback.

Whitworth also reiterated his support of Hewlett-Packard (HPQ - Get Report), a company he now chairs amid a turnaround effort under CEO Meg Whitman. "Meg Whitman is a great leader," the investor said.

Mondelez's Fight with Peltz

Peltz and Mondelez agreed to a pact in January that would give Trian Management seats on the company's board of directors. In return, Peltz agreed to drop a proposal to have the company merge with soda and snacks giant Pepsico (PEP).

Trian Management took large stakes in both Mondelez and PepsiCo in the first-quarter of 2013, and advocated for a merger between the two companies. With Peltz and Trian on-board, Mondelez's board of directors will now expand to 12 members.

Peltz will be included in the company's slate of nominees for election at its 2014 annual shareholder meeting.

"As one of the company's largest shareholders, with a current beneficial ownership of more than 46 million shares, Trian has long seen enormous opportunities in the company's portfolio of strong global brands," Peltz said in January.

"Irene Rosenfeld is a CEO who has created substantial value for shareholders over the course of her career. I look forward to working closely and constructively with Irene, the Board and management team toward our shared goals of driving growth, improving margins and increasing value for all shareholders," he added.

Plan B

Peltz will now press his "Plan B" for PepsiCo shares, a split up of the company's foods businesses from its iconic soda businesses. "Given that Pepsi's not interested in Plan A, we are encouraging them to pursue Plan B," a Trian spokesperson said.

In July, Trian Management released a white paper recommending the soda and snack foods giant should merge in a deal the fund said could lead to approximately share values for PepsiCo and Mondelez of $175 and $72 a share, respectively.

Trian has also advocated a 'Plan B' if PepsiCo does not pursue a merger with Mondelez, advising that the company should simply separate its snacks and beverages divisions, potentially making each division more straightforward and valuable.

Trian and M&A

The fund has experience playing both sides of a company's strategic planning and has been instrumental in many food and beverage industry turnarounds.

In 2007, the Trian took sizable holdings in Cadbury's and Kraft Foods and advocated change at both companies. Specifically, Trian Management said Cadbury should spin off its beverages businesses to streamline operations that spanned from chewing gum to candies and sodas. At roughly the same time, Trian Management took a large holding in foods conglomerate Kraft and gained two board seats, after agreeing not to seek control of the company.

Three years later, Kraft bought Cadbury in a near $20 billion transaction that paid off for the hedge fund. Warren Buffett's Berkshire Hathaway, a top Kraft shareholder, voted against the transaction. Still, the deal went through and Trian sold its shares in Kraft shortly after Kraft's acquisition closed.

Roughly a year later, Trian was back again in Kraft shares. Within a few months, Kraft said it would split off its grocery businesses from its snacks businesses. That split, a corporate action that Berkshire Hathaway supported, paved the way for the listing of Kraft Foods grocery business and the continued listing of the legacy snacks business under Mondelez.

-- Written by Antoine Gara in New York.

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