Famous ketchup maker HJ Heinz is trying to rebuff a group of shareholders who are lobbying for change but the company is short of friends in the financial community and momentum is building against it. David Robertson reports.

Trian Fund Management has taken a 5.4% stake in Heinz worth US$710m and is demanding that five new directors be appointed to the company's board. Trian's lead investor, Nelson Peltz, used the same tactic to get three directors onto the board of fastfood chain Wendy's last year, which subsequently led to the sale of a number of assets including the Baja Fresh restaurants.

In a statement to the stockmarket last week Trian said: "[Heinz] has a valuable group of core brands but… the business strategy employed by management for the better part of a decade has not resulted in a significant increase in shareholder value."

Heinz chairman William Johnson responded with a letter to shareholders stating that the company was already in the process of overhauling its business. Sales growth is estimated at 3-4% in the next financial year and a programme to divest non-core brands will continue.

Heinz will soon generate 90% of its sales from just three core categories (ketchup and sauces; meals and snacks; infant food) and the company's management believes this will help boost both profitability and the share price.

But this is not enough for Trian - or many other investors. The Heinz share price has fallen 19% since Johnson took over in 1998 and the company's performance could best be described as dull. According to a source familiar with one of Trian's investors the plan is to give Heinz a clearer focus and use its capital more effectively.

There are a number of ways this is likely to occur. First, despite Heinz's recent divestments Trian is likely to consider making the business even more focused. This could be achieved by spinning off either the infant foods or snacks and meals division. Heinz could keep a minority stake in the business and then license its name to the new company, freeing itself of substantial demands on capital and management's time.

Secondly, Trian will want to reverse the downward trend in return on equity - the measure of how effectively a company operates and invests shareholder funds. One of the strategies it may adopt is cost cutting. Heinz has already slashed its global workforce by 30% since 2002 and cut manufacturing facilities by 15%. But net income per employee of $15,777 (last year) is still only half that of its peer group, suggesting there is more fat to trim.

Finally, Trian will also want to improve Heinz's revenue growth figures, which taken over a five-year period have been flat. Trian is likely to encourage a more focused approach to product development and promotion. Innovation (in R&D and marketing) could breathe new life into old favourites and create demand for new products.

Trian has said that it will publish a more detailed review of Heinz's business soon and investors will get a better idea then of how the group plans to turnaround Heinz.

If Heinz was in a stronger position it would be able to swat away Trian's demands without too much concern but investors appear to be growing weary of the company's constant promises of improvement. This gives Trian the momentum and the only question now seems to be how much ground Heinz ends up conceding.