CHICAGO (AFX) -- Shares of H.J. Heinz were on the rise Tuesday, gaining as much as 5% after a Cayman Islands hedge fund pressured the packaged food giant to make a variety of changes including deep spending cuts, ramped-up share buybacks and the payment of higher dividends.
Nelson Peltz and his Trian Fund, owners of about 5.4% of the company, are also pushing to elect five directors to the company's 12-member board. Its 'action plan' calls for Heinz to slash annual costs by at least $575 million and it has set up a Website -- -- that outlines the details.
'Despite the company's iconic namesake brand, portfolio of power brands and robust cash flow characteristics, 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,' Trian said on the site. It points out that Heinz has actually declined almost 11% over the period while other food companies like Hershey , PepsiCo , and Wrigley 'have generated total shareholder returns of 60.4%, 60.4% and 65.3%, respectively.'
Trian sees a target valuation for Heinz shares of between $60 and $67, should the company takes its advice and said the stock could be worth up to $81, assuming sales volumes increase due to additional advertising.
'We believe the disappointing shareholder returns at Heinz are a result of management's inability to grow the business and have a focused strategy,' it continued. 'Furthermore, we also believe shareholder value has been destroyed through a series of ill-fated divestitures and acquisitions, failed corporate restructurings and poor capital allocation decisions.'
Heinz shares were up 5% to close at $42.98. In early 1999, it cracked $55; it has only rarely been above $40 since.
The company acknowledged receipt of a letter from Trian about the plan and said that while it had talked to Peltz before, he had not proffered any specifics until now.
'The facts speak for themselves,' Heinz said in a written release. 'In the past four years, Heinz has transformed itself dramatically to improve earnings and enhance shareholder value. With a leaner, highly focused portfolio of leading brands in three core categories and more efficient businesses, Heinz is now in fighting shape to deliver superior shareholder value and growth.'
It added that will update shareholders on June 1 about its own 'superior value and growth' plan for fiscal 2007-2008. That will 'provide details of innovation and advertising for Heinz's top brands as well as savings in supply chain and trade spending that are expected to generate the fuel for strong sales and profit performance and superior shareholder value over the next two years.'
In a note to investors, Terry Bivens of Bear Stearns wrote that 'while we find some of Peltz's targets overly aggressive . . . it now seems clear to us that whether driven by Johnson, Peltz or both, Heinz is about to embark on a program of rigorous cost cutting and share repurchases.' This story was supplied by MarketWatch. For further information see www.marketwatch.com.