Activist investor Bill Ackman is taking aim at Mondelez, paying about $5.6 billion for a 7.5 percent stake in the Deerfield-based food company, spurring speculation that the billionaire could force the snack food giant's sale.
Ackman's Pershing Square Capital Management said it is buying about 120.3 million shares of the snack maker, reportedly making Mondelez Ackman's largest investment to date.
Mondelez, the maker of Oreo cookies and Cadbury chocolate among other products, was split from Kraft in 2012. Kraft kept the North American grocery brands, Mondelez took the snacks.
Kraft combined with H.J. Heinz last month to form Kraft Heinz, creating one of the world's biggest food companies with Jell-O and Heinz's namesake ketchup.
Heinz's owners, Warren Buffett's Berkshire Hathaway and the Brazilian investment firm 3G Capital, engineered the Kraft Heinz merger. Some industry watchers say Kraft Heinz, with a market cap of $97.6 billion, could be in line to buy Mondelez, which has a market value of $75.6 billion.
Argus Research analyst John Staszak said it looks like Ackman is taking a big bet on Mondelez being purchased by 3G Capital or Kraft Heinz. "But that's a huge acquisition," he said. Consumer tastes have turned against the kind of processed, packaged foods Mondelez sells, so "it's a pretty risky move."
"It's an old-line food company — he obviously has an idea what he's doing, but I'm a bit skeptical — consumer preferences have changed so much," he said.
Kraft Heinz declined to comment.
Mondelez spokeswoman Valerie Moens said the company welcomes Pershing Square as an investor. "We'll continue to focus on executing our strategy and on delivering value for all our shareholders," she said in an emailed statement.
Mondelez has been busy cutting costs and shifting its lineup to align with consumer tastes amid a slowdown in the global snack business.
Such cost-cutting has become common for major packaged food companies as tastes shift toward foods marketed as fresher or more natural. To appease investors, companies including Campbell Soup, Coca-Cola, General Mills, Kellogg and PepsiCo have said they would trim costs and free up money to market their flagship brands.
Those struggles have also led a flurry of corporate restructuring and deal-making that is reshaping the industry. That has included acquisitions of smaller, faster-growing companies, as well as consolidation among big players.
Activist funds typically acquire equity stakes to force management to make changes that boost share prices and returns.
Alexia Howard, a senior food industry analyst with Sanford C. Bernstein, said she doesn't believe Ackman is trying to do anything "radically different" at Mondelez, just that he'd probably like Mondelez CEO Irene Rosenfeld to do "more" and act "faster" on what she's already doing to improve efficiency.
A merger with Kraft Heinz wouldn't make much sense and would be a "step back in time," Howard said. But with more than 100,000 suppliers around the world, Mondelez still has plenty of scope to rationalize, she added.
Credit Suisse analyst Rob Moskow agreed that Ackman "clearly sees value in the business itself," adding that "management has done a very good job of listening to investors and taking action to improve its margin."
Still, he said, there are two potential buyers for the business — Pepsi and "maybe even Kraft Heinz." The synergies with Pepsi's Frito-Lay business are "obvious and well-documented," but an acquisition by Pepsi would require changes in Pepsi's C-suite, he said.
"In terms of Kraft Heinz, I don't know if he sees any strategic rationale for moving a snack business back with a groceries business. It's tough for me to see it," Moskow said. However, he added that Mondelez's $3 billion cheese and grocery division, which includes licensed former Kraft products including Philadelphia cream cheese, "would fit extremely well with Kraft Heinz … they'd love to have those back."
Moskow, whose employer does business with Mondelez, Kraft and Pepsi, said he does not believe that consumers will turn against Mondelez's packaged products, commenting that even health-conscious shoppers like to "treat themselves to indulgences — sometimes even as a reward for leading those healthy lifestyles."
He said Ackman was investing in "a high-quality business" that also has the opportunity to be bought by a strategic acquirer. But "he's probably indifferent to who buys them," he said.
Mondelez is used to activist investors wielding their power.
In early 2014, the food giant named activist investor Nelson Peltz to its board. The move came after Peltz took a large stake in Mondelez in an effort to push it to merge with PepsiCo, which he later abandoned. Industry watchers say Peltz, who is one of Mondelez's highest-paid board members, has been pushing Mondelez to cut costs and improve profitability.
Peltz declined to comment through a spokeswoman for Trian Fund Management, an investment management firm founded by Peltz.
Among other investments, Pershing Square has an 8.4 percent stake in Zoetis, a global animal health company that develops, manufactures and markets veterinary vaccines and medicines; a 5.7 percent stake in Valeant Pharmaceuticals; and a 13.2 percent stake in commercial and residential developer Howard Hughes Corporation, according to SEC filings.
Mondelez is searching for ways to improve its financial results while the global snack business slows.
Last month, Mondelez completed the merger of its coffee business with that of a smaller rival and acquired an 80 percent interest in a Vietnamese biscuit company.
But it reported second-quarter profit that fell 35 percent. The company increased its share buyback plan by $6 billion and boosted its sales outlook for the year.
Mondelez released its second-quarter report a day after announcing plans to slash half the workforce at its Southwest Side bakery in Chicago.
Mondelez shares were up less than 1 percent in midmorning trading. Ackman's total stake is based on Mondelez's closing share price on Wednesday of $46.29.
Associated Press contributed.