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Ackman Takes 7.5% Stake in Mondelez International Inc (MDLZ) but Market Has a Reserved Reaction

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Bill Ackman has found a new activist target in Mondelez International Inc (NASDAQ:MDLZ), in which his fund, Pershing Square, has just disclosed a 7.5% stake. The position contains around 120.27 million shares and will now allow the investor to engage in discussions with the company’s management and board of directors regarding the course of business and other issues. Knowing Ackman’s track record of activist campaigns, we might anticipate more details regarding Ackman’s plans in the near future. On the back of the news, the stock of Mondelez jumped by around 4%, but later retracted and currently trades around 0.80% in green.

Bill Ackman, Carl C. Icahn, William A. Ackman, Pershing Square Capital Management, Icahn Capital LP,

This news is particularly important, because following activists like Ackman is an easy way for retail investors to get some profits. For example, a lot of large and small investors followed Ackman into Allergan last year as he made a hostile bid for the company and even though the deal fell through following the sale of Allergan to Actavis, those investors still sold their shares at a significant premium. Therefore, piggybacking on activist campaigns could be a simple way to beat the market. However, the outcome of activist campaigns is often uncertain, therefore there is a lot of risk involved. Through extensive research, we determined that another way to benefit from the insights of larger money managers is to follow their small-cap picks. Our portfolio of 15 most popular small-cap ideas among a pool of over 700 investors, returned around 123% since August 2012 and outperformed the S&P 500 ETF (SPY) by some 65 percentage points (see more details here).

Bill Ackman
Bill Ackman
Pershing Square

Following the disclosure of Pershing Square’s position (valued at roughly $5.50 billion), obvious rumors that succeeded are that Ackman would push for a sale of Mondelez International Inc (NASDAQ:MDLZ). Moreover, a potential buyer was named 3G Capital, which earlier this year acquired Kraft and merged it with Heinz. However, the news has not been confirmed so far. It should be also reminded that Kraft was spun-off from Mondelez in 2012. Following the merger, Kraft Heinz is privately owned by 3G Capital and Warren Buffett’s Berkshire Hathaway.

Ackman and 3G Capital have a long history of working together. Earlier this year, 3G played a key-role in the Tim Horton’s acquisition of Burger King and following the combination of the two companies, Pershing obtained an 18% stake in the new company as a former shareholder of Burger King. Moreover, in an interview in January, Ackman said that he invested a part of his personal wealth in 3G Capital, a Brazilian multi-billion dollar investment firm co-founded and run by Jorge Paulo Lemann.

The retraction of Mondelez International Inc (NASDAQ:MDLZ)’s stock later in the day shows market’s skepticism regarding a possible deal involving Mondelez in the near future. Its stock is up by 27% year-to-date and the company has been improving its performance and managed to beat the estimates with its latest financial results. For the second quarter, it posted a 9.2% annual decline in revenue to $7.7 billion, due to currency headwinds, while its EPS fell by $0.11 to $0.25. For the current year, Mondelez expects to deliver at least 2% revenue increase and double-digit EPS growth on a constant currency basis. The company also reiterated its income margin target to the range between 15% to 16% in 2016.

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