- Jana Partners on Thursday disclosed a 9.1% a stake in Pinnacle Foods, according to a filing with the U.S. Securities and Exchange Commission.
- The hedge fund said the company's shares "are undervalued and represent an attractive investment opportunity." Jana wrote that it intends to engage in discussions with Pinnacle Foods' board "regarding value creation measures" that could include "a sale or other consolidation opportunities" because of the company's prominent position in frozen foods.
- Pinnacle Foods, which has long been rumored as an acquisition target, owns gardein, Birds Eye, Hungry-Man and Mrs. Paul's. “We are aware that JANA Partners has made a 13D filing regarding its investment in Pinnacle Foods," the company said in a statement provided to Food Dive. "Pinnacle’s board of directors and management team welcome stockholder input and are committed to continuing to create value for all stockholders.”
Jana Partners, the activist hedge fund that pushed for changes at Whole Foods before the grocer was sold to Amazon for $13.7 billion last year, has another food company in its cross hairs.
Pinnacle Foods has been previously discussed as ripe for a takeover. It was nearly purchased four years ago by Hillshire Brands, but Tyson Foods ended up buying Hillshire instead. Then last June, it was reported that Conagra Brands was looking to purchase the company.
If Jana ultimately does agitate for a sale, it would make sense for Conagra to be one of the interested buyers. Both companies are prominent players in the resurgent frozen food space, and Conagra could integrate Pinnacle's brands with its popular Banquet, Healthy Choice and Marie Callender's line of products. The new company would save money combining front-end operations, ingredient purchases and shipping expenses. It would also have more power to negotiate with retailers for space in the crowded frozen food section.
In a research note, Barclays said the frozen food space is "ripe" consolidation. In the case of Pinnacle, the firm said Jana is familiar with the business and has a "healthy relationship with management."
"We believe the timing is both opportunistic from a valuation perspective and reflective of the bull case on (Pinnacle Foods) in that there could well be multiple ways to win," Barclays said. "An activist posture could perhaps bring buyers back to the fore."
Jana said in its filings that virtually all options are on the table. If its past involvement with food companies is any indication, a sale or another meaningful transaction is all but certain. No other activist has shown a penchant for getting involved in the sector more than Jana Partners. It was instrumental in getting Conagra — also known for its Peter Pan peanut butter, Hebrew National hot dogs and Pam cooking spray — to spin off its Lamb Weston frozen potato company and sell its private label business to TreeHouse Foods for $2.7 billion in 2016.
A Jana representative told Food Dive last year that the hedge fund doesn't specifically single out businesses in the food space, but has seen opportunities recently where companies are undervalued and its involvement could help unlock value. It's not a surprise to most people who follow food that large companies such as Pinnacle are vulnerable to outside involvement.
While companies like Pinnacle have countless brands that are recognizable to the everyday shopper, they are increasingly finding consumers gravitating away from these products in favor of snacks and healthier, organic and better-for-you items. Efforts by CPG companies to increase their presence in these spaces through internal innovation or making deals of their own have, in many cases, failed to stop slides in revenue or stock prices — leaving them attractive for a takeover or the involvement of an activist.
Currently, Pinnacle is not the only food company feeling the heat from an outside investor. Hain Celestial agreed to an overhaul of its board — and reportedly has looked into putting itself up for sale — after Engaged Capital took a nearly 10% stake in the organic and natural products manufacturer last summer.
And last June, billionaire activist investor Daniel Loeb’s Third Point hedge fund took its largest-ever initial bet on a public company with a $3.5 billion position in Nestle, amounting to about 1.25% of the company's shares. The hedge fund has publicly outlined changes the maker of Lean Cuisine and Nescafe can make, including improving margins, innovating its core business and selling non-core assets. In recent months, Nestle has been purchasing or taking stakes in high-end coffee companies like Blue Bottle and Chameleon Cold-Brew while selling its U.S. confectionery business to Ferrero Group for $2.8 billion.
Even though it's too early to speculate on the fate of Pinnacle, the past involvement of activist investors in the food space has often resulted in meaningful changes — including sale of the targeted company. Jana has a history of getting results from companies with which it becomes involved, and there is likely little that Pinnacle can do now to withstand the influence of this activist investor.