Trian Fund Management on Kraft, Family Dollar, & Wendy's (Investor Letter) ~ market folly

Monday, March 26, 2012

Trian Fund Management on Kraft, Family Dollar, & Wendy's (Investor Letter)

Nelson Peltz's Trian Fund Management finished 2011 up 3.9% in their Offshore Fund and up 5.6% in their Onshore Fund. Their year-end letter to investors touched on some of their largest investments:

On Kraft (KFT)

They established a new position in KFT during 2011 and their thesis was that scale "had become a vice, not a virtue" and they also thought it "offered a compelling risk-reward (one of the lowest forward earnings multiples in the packaged food space and an almost 4% dividend yield)."

The company announced it would split itself in two via a tax-free spinoff: a growth company (their global snacks business) and a cash company (a slower growth, North American grocery business). Trian believes this will lead to "reduced complexity; better resource allocation; margin expansion; and improved organic growth."

Bill Ackman's Pershing Square Capital also bought KFT in August.

On Family Dollar (FDO)

Peltz's firm first invested in mid-2010 and the thesis was that if operating metrics caught up to their closest competitor (Dollar General), the stock would trade higher. Trian offered to buy the company, but the board rejected the offer. Many investors thought this was a maneuver to invoke other takeover offers, but nothing materialized in that regard.

Since then, Family Dollar has implemented a new President, increased store openings, and renovated more stores. Bill Ackman also owns shares and has in the past laid out his FDO thesis.

On Wendy's (WEN)

Trian notes that the company divested its stake in fellow fast food chain Arby's in 2011 and it is now a pure play on the single Wendy's brand. The firm likes that the company's new menu items led to higher sales and that store level margins have improved.

In early December, Trian filed a 13D with the SEC that it was allowed to boost its ownership position in WEN to 32.5%, up from their 26.2% stake per an agreement with the company.

On Potential New Buys

In terms of other positions, the investment firm says that they expect to make 2-3 new core investments in 2012 as they've built a solid list of potential buys. Regarding what they're looking at, Trian writes:

"We like the large-capitalization profiles as these companies tend to be higher quality companies (companies with significant market shares, investment grade balance sheets, strong dividend paying capacity and attractive trading liquidity) where we attempt to minimize risk and maximize reward by making our investment at what we believe are attractive valuations and having a plan to make them more profitable."

Trian also believes the M&A landscape will pick up in the future.

For more from them, we've posted up Trian's bullish case for Tiffany & Co (TIF). And in recent portfolio activity from Nelson Peltz' firm, we've highlighted they've sold some H.J. Heinz (HNZ). They've done so largely because the company has traded at a premium to its competitors.

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