Mondelez brands

Is Mondelez the next takeover target?

When the former Kraft Foods split into two in late 2012, many analysts and investors predicted that both pieces would be takeover targets. The new Kraft Foods Group succumbed on March 25, gobbled up by seasoned cost-cutters 3G Capital, a Brazilian private-equity firm, and Warren Buffett’s Berkshire Hathaway, in a deal valued at $48bn. CEO Irene Rosenfeld is doing everything she can to make sure the same thing doesn’t happen to her chunk of old Kraft, Mondelez International.

Kraft Foods CEO John Cahill, less than three months into the job, threw up his hands and decided if someone else

could wring more profit out of his Northfield-based company, let them. 3G and Buffett promise to do just that, estimating that they’ll save $1.5 billion in annual costs by 2017. Rosenfeld, on the other hand, is taking on the cost-cutting herself.

Even that may not save her company, however. Kraft’s merger with ketchup king HJ Heinz, which boosted Kraft’s share price by more than a third, “puts additional pressure not just on Mondelez, but on all of its packaged-food peers,” says Erin Lash, an analyst at Morningstar. “They’ve got to improve their own profitability and make their operations more efficient.”

Like Kraft, Deerfield-based Mondelez, which spirited off with the vast majority of the former Kraft’s global brands, struggled out of the gate as an independent company, disappointing investors with underwhelming results.

To get back on track, Kraft poured money into reinvigorating old brands like Jell-O and Planters nuts, while Mondelez set aside its growth plans to focus on corporate austerity after sales slowed in once-red-hot emerging markets such as Brazil and Russia. In a recent speech to business leaders in Chicago, Rosenfeld explained her pivot as a response to when the company’s “best-laid plans (went) to hell in a handbasket.”

Pressured in part by Trian Fund Management and activist investor Nelson Peltz, who now has a spot on its board, Mondelez implemented an initiative called zero-based budgeting, which forces managers to justify all spending each year versus basing costs on the prior year’s levels.

The approach, which has led to cuts in travel budgets, curtailed use of company vehicles and less spending on information technology, appears to be paying off; in 2014, Mondelez reduced overhead expenses as a percent of revenue by 0.7 percentage points. While that’s about a third of the way toward Rosenfeld’s goal, analysts are quick to point out there’s a long way to go….. Read the full article