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Activist Investor Peltz Targets Kraft, Buying 3% Stake: CNBC's Faber

Published: Thursday, 21 Jun 2007 | 3:24 PM ET

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By: CNBC.com

Activist investor Nelson Peltz has developed a taste for Kraft Foods, buying a 3% stake in the company, according to CNBC's David Faber, who quoted people familiar with Peltz's strategy.

Nelson Peltz
Nelson Peltz is buying a 3% stake in Kraft.
Kraft [KFT Loading... () ], which makes Oreo cookies and Oscar Mayer meats, saw its shares surge more than 6% on the report.

Although Peltz declined to comment, sources told Faber that Peltz plans to push Kraft to make a number of significant moves aimed at increasing Kraft's share price.

Peltz has not yet spoken to Kraft Chief Executive Irene Rosenfeld about his ideas, but he plans to do so "in the not-too-distant future," Faber said.

Peltz plans to push for the company to buy back its shares and shed some of its brands, including Post cereal and Maxwell House coffee. He also is eyeing Kraft's cheese business for an overhaul, Faber said.

According to Peltz, Kraft should focus on its grocery and frozen foods businesses and strengthen its position outside the U.S., Faber said.

In the past, Peltz has targeted other consumer products companies, including H.J. Heinz [HNZ Loading... () ]--where he was successful in winning two board seats after a bitter fight--and Cadbury Schweppes [CSG Loading... () ]. He also is the largest single shareholder in jewelry retailer Tiffany [TIF Loading... () ].

Peltz runs Trian Fund Management, which operates a $4 billion hedge fund. According to Faber, the fund invested roughly $500 million to purchase Kraft shares, and has raised $900 million separately to help undertake its plans.

Kraft was not immediately available to comment.

Kraft, the largest U.S. food company, was spun off from Altria Group, the parent of tobacco company Philip Morris USA, earlier this year.

Rosenfeld re-joined Kraft as its CEO last summer after a stint at Pepsico's Frito Lay North America unit. After conducting a review of the company's operations, she unveiled plans to overhaul Kraft in February.

"Critics say she has yet to articulate a vision for the company," Faber said. "She failed to move quickly to sell lagging brands and strengthen existing ones."

According to Faber, Peltz believes Kraft can increase its leverage from its current position of below 2-times earnings before interest, taxes, depreciation and amortization to about 4-times EBITDA.