Blog: Chris Brook-CarterBean counting

Chris Brook-Carter | 24 May 2006

There must be times when the management of the world’s largest publicly-listed companies, despite all the benefits that a stock market listing can bring, wish they could operate behind the closed doors of a private group.

Such must be the feeling of HJ Heinz Co. and CEO William Johnson at the moment, as he battles to convince dissident shareholders that the famous food company is on the right track.

The company has been undergoing a major transformation under Johnson’s leadership, cutting costs and selling off non-core assets.

However, a group led by activist investor Nelson Peltz on Tuesday called for HJ Heinz to go further, to sell more assets, cut costs and increase share repurchases in a plan,  the group says, could almost double the ketchup maker's stock price.

News of the Peltz plan has driven Heinz’s share price up. Already healthier by almost 17% since word first surfaced in February that Peltz would seek board seats, it rose again yesterday.
 
Peltz had said his plan could lift the stock to as much as $81.

Heinz has said it will evaluate the proposals ahead of its shareholder update on 1 June. However, the pressure the company now finds itself under demonstrates one of the major pitfalls listed companies face, particularly those undergoing restructuring as a consequence of underperformance. These plans are inevitably long-term . The pressures of the stock market, however, call for short-term results, at least on a six-month basis but sometimes over an even shorter time frame.

Standard & Poors has issued an interesting research note, following the publication of the Peltz plan. Placing the company’s stock on creditwatch with negative implications, S&P analyst Nicole Delz Lynch said: “Credit measures are already weak for the rating. We are concerned that the company will no longer be able to improve its financial profile as planned if outside pressures cause management to pursue more equity-focused actions, specifically, an increase in leverage."

What the company must do is now reject all those proposals it believes hold only short-term benefit and maintain its focus on the medium-  to long-term, despite investor pressure for an unrealistic timeframe for a turnaround.

Chris Brook-Carter - group news editor and acting editor of just-food.com


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