Peltz Is Cagey on Tribune Investment
When Nelson Peltz puts his money at risk in a company, he expects to shake things up.
That was the case in his junk-bond-fueled takeover of National Can Co. in 1985, his celebrated turnaround of beverage maker Snapple in the late ‘90s and more-recent forays involving such brands as Cracker Barrel, Wendy’s and Heinz.
As one admirer, Harvard Business School professor John A. Deighton, put it: “He likes to throw gasoline and then light a match.”
Just the news last week that Peltz’s hedge fund had built up a 1.2% stake in Tribune Co. in recent months was enough to make the media conglomerate’s stock jump nearly 5% in a day. Chicago-based Tribune is the corporate parent of the Los Angeles Times, KTLA-TV Channel 5, the Chicago Tribune, the Chicago Cubs baseball team and other newspapers and TV stations nationwide.
Wall Street speculated that the 64-year-old billionaire would increase the pressure already being applied by a shareholder group that has called on Tribune management to sell assets, spin off its broadcast division or sell the company. Tribune declined to comment on Peltz’s investment, as did representatives of the dissident Chandler family of California, the company’s largest shareholder, with 15% of the stock.
Peltz isn’t talking about it either. In an interview Friday, he wouldn’t even confirm that his investment vehicle, Trian Fund Management, still holds the 2.83 million Tribune shares that it said in a regulatory filing Aug. 14 it had amassed as of June 30.
Of his overall investing philosophy, he did say: “We don’t buy a share of stock if we don’t have a plan.”
Investors in Peltz’s fund expect him and his team -- including his decades-long business partner Peter W. May and Peltz’s son-in-law, Edward P. Garden -- to be anything but passive, he said. They don’t get involved in more than half a dozen “situations” at a time, Peltz said, because doing more would mean skimping on the time and attention needed to make such investments work.
Peltz certainly has been active lately. On Wednesday, he declared victory in a bitter five-month proxy fight with ketchup giant H.J. Heinz Co., saying that Trian had won at least one seat -- and probably more -- on the board of the venerable Pittsburgh-based company.
Heinz, for its part, also declared victory, saying it had defeated at least some of the five board candidates Trian had put forth. Peltz’s group, in sometimes abrasive terms, has been pushing Heinz management to cut costs by $575 million a year. At the same time, it wants the company to pour more money into the marketing of “iconic brands” such as Heinz ketchup, Ore-Ida potatoes and Lea & Perrins Worcestershire sauce.
Heinz management contends that the prescription is too extreme and would be crippling. At a news conference after Wednesday’s annual shareholder meeting, a Chicago Tribune reporter asked Heinz Chairman William Johnson what advice he would give Tribune Chief Executive Dennis J. FitzSimons about wrangling with Peltz.
“Put on a flak jacket,” Johnson said.
Before he started stepping on toes in boardrooms, Peltz grew up in an upper-middle-class household in Brooklyn and Manhattan. He didn’t consider himself a born businessman. Deighton, the Harvard professor, said Peltz once confided that he had dropped out of the University of Pennsylvania’s prestigious Wharton School partly because the courses were over his head.
On a break from Wharton at age 21, Peltz needed money for a trip to Oregon, where he’d been offered a job as a ski instructor.
His father hired him at $100 a week to drive a truck for the family food business and told him to try out any ideas he had for improving the business.
Peltz never made it to Oregon or returned to Wharton. He and his brother built the family business to $150 million in sales from $2.5 million in a little more than a decade. They sold the company in the mid-1970s, and Peltz went looking for other opportunities.
In the early ‘80s, he and May acquired an old-line manufacturing company, Triangle Industries, which became the vehicle for their first major coup, the purchase of National Can. They later added American Can Co.'s packaging division and a Uniroyal chemicals unit. The acquisition binge was financed with the high-yield junk bonds made famous by Michael Milken and Drexel Burnham Lambert.
Peltz said his main regret about those years was “how they were characterized.” Junk bonds, then vilified, are now a garden-variety Wall Street financing technique, he said.
Peltz has stayed friendly with Milken, who served a jail term for securities violations. “Unfortunately,” Peltz said, “pioneers sometimes end up with arrows in their backs.”
Though Peltz and May sold Triangle at a big profit, their biggest home run by far was Snapple, a brand that was in serious decline when they bought it from Quaker Oats Co. in 1997 for $300 million. Peltz’s management team developed new products and beefed up marketing before selling the beverage company in 2001 for $1.45 billion -- five times their investment.
That success became the subject of a Harvard Business Review article by Deighton, who has since invited Peltz as a guest lecturer in a course for midcareer business owners. His sharp observations and “witty, punchy” speaking style are a hit with the entrepreneurs.
“By the end of the class, Nelson always has them eating out of his hands,” Deighton said.
Peltz’s down-to-earth manner of speaking contrasts with his lifestyle, which is anything but prosaic.
He wears handmade suits by Milanese designer Gianni Campagna. Peltz owns a 100-plus-acre estate in exclusive Bedford, N.Y., and an oceanfront home in Palm Beach, Fla., that a magazine once ranked as the most expensive private residence in the U.S. The Bedford estate includes a skating rink, complete with Zamboni, for his hockey-playing and figure-skating kids. He has 10 children from a previous marriage and with his second wife, Claudia, a former fashion model.
Peltz has described his investment approach in mostly benign terms. He and his partners at Trian buy stakes in undervalued companies, typically seeking board seats to influence management more directly. Peltz says he shuns the short-term corporate-raider approach of buying a company simply to drain it of cash to enrich his own company and other investors. Instead, he says, he focuses on improving a company’s operations, hoping to build up its core brands while cutting unrelated costs. The goal is to increase sales and profit along with the stock price or lay the groundwork for a sale or spinoff of assets.
“Some of these activist shareholders are just looking to tap into a company’s cash through special dividends and share buybacks,” said Chris Young of Institutional Shareholder Services, which advises clients on how to vote in proxy contests. “Peltz styles himself as an ‘operational activist,’ and we found that to be true.”
Peltz’s arrival on the scene isn’t always cause for celebration, however. Shares of Heinz and restaurant operator Wendy’s International Inc. have gone up since Peltz entered the picture. But the companies’ credit ratings have been cut, potentially forcing up borrowing costs. And after getting an initial boost, shares of CBRL Group Inc., owner of the Cracker Barrel chain, have retreated to their pre-Peltz levels.
“I would caution anyone who is thinking of him as the Lone Ranger, the guy who is going to come to town and make everything better,” said Nell Minow, editor of Corporate Library, a research firm that promotes shareholder rights. “He’s been better at taking care of himself instead of other shareholders.”
Though sometimes good for stock investors, Peltz’s methods can be hard on workers. Facing pressure to perform, Heinz management said in June that it planned to cut 2,700 jobs over the next year. And that’s fewer than Peltz has pushed for. Wendy’s also is whittling jobs, with plans to lay off close to 400 corporate workers.
Moreover, credit tracker Standard & Poor’s trimmed its ratings for Wendy’s and Heinz, concerned that Peltz’s initiatives would put more debt on their books. “It’s not unusual that when an activist emerges, it can have a negative implication for bondholders,” said Matthew Kaufler, a portfolio manager with Clover Capital Management in Rochester, N.Y.
Kaufler, whose firm owns 368,000 shares of Heinz stock, believes that Peltz can have a positive effect, especially on companies with unresponsive or incompetent managements.
“When a guy like Peltz gets in the boardroom, it’s like the proverbial fox in the henhouse” and existing management doesn’t like it, Kaufler said.
“It’s disruptive,” he said, “and from my perspective, that’s not necessarily a bad thing.”