The long-running battle at Heinz, which reached its climax at yesterday’s AGM, has been acrimonious and disruptive but, writes David Robertson, Nelson Peltz’s attempt to place himself and nominees on the Heinz board has been a catalyst for change, leading to a recovery in the company’s share price.
Both sides were claiming victory yesterday (16 Aug) as the long-running battle for control of the US food group HJ Heinz reached its climax at the company’s Annual General Meeting, but it is investors that are benefiting most from the bad-tempered struggle for boardroom power.
Heinz executives and dissident investors, led by billionaire Nelson Peltz, are vying for control of the company. Peltz has attacked the incumbent management as a “clubby, caretaker board” and was seeking to have five alternative directors elected.
The votes will take several more weeks to tally but Heinz has admitted that Peltz is likely to win sufficient support to get one or two directors elected.
So the stalemate is likely to continue. Peltz has insufficient clout to take over completely but enough not to be dismissed by Heinz chief executive William Johnson.
This lack of clarity was a deflating end to a five-month campaign for control of Heinz. Christopher Growe, analyst with AG Edwards, said: “We fully anticipated some news out of this meeting but instead were left watching and waiting for the eventual outcome. This annual meeting, with significant fireworks going into the meeting, quickly became a non-event.”
But while Peltz and Johnson will be disappointed by the lack of closure, investors can be happy with the effect Peltz has had on Heinz so far. In the eight years since Johnson took over, the company’s share price has fallen by 38%, but since February, when Peltz’s Trian Fund Management took a 5.5% stake in the group, the shares have risen by 21%.
Heinz has been forced to kick-start a restructuring plan, offering a watered-down version of Peltz’s proposals. This will see cost savings of US$355m, higher payouts to shareholders and a promise to tackle underperforming divisions. At this rate, investors will be hoping Peltz remains a thorn in Heinz’s side for many more AGMs to come.
Andrew Lazar, an analyst with Lehman Brothers, said: “Irrespective of who or what actions jumpstarted the enhanced plan and additional management accountability, this team now needs to execute on the plan and show specific areas of traction, particularly around improving its European trends.”
However, for all the bluster of yesterday’s AGM there is a quite tragic element to the battle for control of Heinz. The incumbent management have frittered away shareholder capital by doing little with the core business, divesting potential growth units and hanging on to brands that are struggling. They have then spent millions of dollars, $12m to $13m on the AGM campaign alone, defending this catalogue of failure.
But the Peltz crowd are little better. We were witness to Peltz posing for cameras wearing a Heinz hat yesterday, as he succumbed to the temptation of easy press coverage rather than maintaining the dignity that most people would expect from a billionaire.
Also, Peltz’s proposed new directors are just as “clubby” as the ones he wants to replace. They include his business partner Peter May; his son-in-law Edward Garden; his friend, the golfer, Greg Norman; and another business chum Michael Weinstein.
If cronyism is rife at Heinz now, Peltz’s nominees owe even more to their benefactor. Peltz has done everyone a favour by making Heinz an issue but he is in danger of becoming a clownish figure. He might do well to consider gracefully stepping aside if he can get Wall Street’s institutions to force the management changes that are needed.