Billionaire hedge fund manager Bill Ackman poured over $5.0 billion into Mondelez International, Inc. (NASDAQ:MDLZ), the maker of Oreo and Ritz crackers. Ackman has made some good bets in the past. Would this be another one of them?
Last month, Ackman’s hedge fund Pershing Square Capital Management disclosed a 7.5% stake in Mondelez. At today’s price, Ackman’s stake is worth approximately $5.01 billion. (Source: The Securities and Exchange Commission, last accessed September 11, 2015.)
Ackman has quite a bullish view on the Oreo-maker. On Friday September 11th, he told CNBC that “Mondelez will be a much more valuable company a year from now than it is today. Two years from now, it’s going to be even more valuable.” (Source: CNBC, September 11, 2015.)
Is Mondelez International a $75.00 Stock?
Why is Ackman so bullish about Mondelez? Well, there are at least three things that could boost investor’s interest in the company.
First, in an effort to reduce costs, Mondelez has implemented Zero-Based Budgeting tools. This means all expenses must be justified for each new period. As a result of the cost management program, Mondelez expects to reduce overhead expenses as a share of revenue by at least 2.5 percentage points between 2013 and 2016. (Source: Mondelez, last accessed September 11, 2015.)
Moreover, Mondelez is simplifying and standardizing over 150 back-office processes over the next two to three years. The company has closed, sold, or streamlined 78 production facilities since 2012, and expects to have 40 new state-of-the-art manufacturing lines by the end of 2015.
Second, according to Mark Clouse, Executive Vice President and Chief Growth Officer at Mondelez, the company would find growth opportunities in global consumer trends, such as an increasing emphasis on wellbeing.
You see, brands such as Oreo and Ritz don’t really strike as being healthy snack options. However, the company is quite confident about growing its wellbeing offerings: “We intend to become the global leader in well-being snacks, with 50 percent of our portfolio in the well-being space by 2020.”
“Our goal is to simplify and enhance the ingredient and nutritional profile of our base business while also focusing on breakthrough innovation to address consumers’ well-being needs. Over the next five years, we expect to focus 70% of our new product development efforts on well-being platforms.”
To address the trend of time compression and technology in snacks, Mondelez is also focusing on its e-commerce platform. The company expects e-commerce to become one of its fastest-growing platforms, with the segment’s revenue increasing from less than $100 million today to as much as $1.0 billion by 2020.
Finally, and perhaps most importantly, the investment landscape in the food industry has changed quite a bit in the past few years. Mondelez used to be a part of Kraft Foods until it was spun off into a separate entity in 2012. In July of this year, Kraft Foods and Heinz completed their merger and became The Kraft Heinz Company (NASDAQ:KHC). The merger was backed by Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B).
According to Ackman, Mondelez could become a buyout target at some point. “If you had to make a list of companies that Buffett would like to own, Mondelez is certainly on the list.”
Here’s the Bottom Line
I wouldn’t bet against Ackman. Mondelez is a wonderful business. If there’s any value hidden inside this company, he’s going to find a way to unlock it.