Blog: Heinz gives investors food for thought

Catherine Sleep | 5 June 2006

Heinz management has found itself in even more hot water this week as investors remained unmoved by the ketchup maker’s earnings and the new superior value plan, released on Thursday (1 June) in response to pressure from activist investor Nelson Peltz.

With a proxy battle on the horizon, Heinz now plans swiftly to execute a toned down version of Peltz’s proposals – moves the company described as the culmination of a four-year restructuring effort under chief executive William R. Johnson. “Today's Heinz is structurally the company I envisioned four years ago,” Johnson said in a conference call.

Although the battle between Heinz and Peltz is receiving plenty of publicity, the problems faced by Heinz are not uncommon in the food industry. There are notable parallels between this situation and problems at Campbell Soup, ConAgra, Unilever and Sara Lee over the past few years. Each company boasts some strong brands but has come under pressure from increased competition, which has hit sales and profits.

Compared with these and other food manufacturers anchored in slow-growth segments of the market, Heinz has been slow to streamline its product portfolio, cut manufacturing and administration costs and use these savings to boost marketing, new product development and shareholder returns. But these steps are no guarantee of success, as the past trials of Unilever demonstrate.

Peltz’s Trian Group issued a stinging response to Heinz’s plans on Friday (2 June), accusing the company’s current management of peddling empty promises, and adding that it intended to push ahead in its efforts to have its own nominees appointed to the Heinz board.

Highlighting the questionable performance of five previous plans to improve shareholder value launched under current management, Trian said: “Despite the five plans and their respective promises, Heinz's total shareholder returns have almost uniformly underperformed those of both the broader market and the consumer packaged food universe since the current management team began leading the company in April 1998. … The fundamental issue at Heinz today is management accountability - specifically, the current management team's inability to deliver on its plans and promises to date.”

What now remains to be seen is if Peltz and Trian will succeed in their coup d’état and get their own representation on the board. Or has Heinz management done enough to regain shareholder confidence? Watch this space for more on Heinz in the coming weeks.

Katy Humphries, News Editor


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