Peltz targets are catching flak

Activist investor zeroes in on Heinz

is Tribune next?

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PITTSBURGH -- William Johnson didn't miss a beat when asked what advice he would give Tribune Co. Chief Executive Officer Dennis J. FitzSimons, now that Sun owner Tribune might be in the sights of Nelson Peltz, the billionaire activist investor.

"Put on a flak jacket," said the chairman of H.J. Heinz Co. after presiding over the embattled ketchup company's fractious annual meeting here Wednesday. "And do the right thing for all your constituents. ... You can't simply hand over the keys to someone else."

Johnson has an intimate perspective when it comes to engaging with Peltz. He has spent the past five months and $13 million fending off a proxy challenge from the 64-year-old New York financier and his Trian Group investment partnership.

At the meeting, Johnson donned his own well-worn flak jacket as he tried one last time before the proxy vote to win over shareholders caught in middle of one of the ugliest mudslinging contests in recent Wall Street memory.

Official results won't be in until Sept. 15, but both sides claimed victory after the meeting. Based on preliminary vote counts, Heinz predicted that it had prevented Trian from winning the five board seats it had sought, and Trian insisted it had won at least some board seats.

"When this whole thing started back in March," Peltz said, "the idea that Trian would have gotten a seat was close to preposterous. But here we are almost six months later, and we're wondering how many seats we're going to get - not if."

Peltz and his partners remained silent regarding what appears to be a large holding of Tribune stock. On Monday, a Securities and Exchange filing showed that as of June 30, Peltz and his partners held 2.83 million shares of Tribune, or 1.2 percent of the company, amassed during the second quarter. In addition to The Sun, Tribune owns the Chicago Tribune, the Los Angeles Times, Newsday and other newspapers, along with television stations and the Chicago Cubs.

Peltz and his partner Peter May described their approach as "operational activism."

Peltz and May said they target companies that have good brands and assets but are underperforming. Working closely with - not against - management, May was careful to say, the Trian team tries to instill a greater sense of discipline about spending limited resources on the things that matter most: strategies to create growth in a company's core businesses.

At Heinz, for instance, Peltz has long complained that the company has scattered its resources and doesn't spend enough on its well-known ketchup brand to spur healthy demand.

As a result, he said, "They have no pricing power. That has to be reversed."

May said Trian forms a plan identifying "where the company went wrong" and where the opportunities are for improvement. The plan comes "before we start making our investment." Then, he added, "we try to work with management to implement those programs."

The emphasis is always on the income statement, not trying to fuss with the balance sheet to find value, May said.

"We focus on building the business," he said.

Peltz and May have been controversial figures on Wall Street ever since their first big deal - the junk-bond financed combination of American Can and National Can, part of which they ultimately sold for $800 million in 1988, amid several shareholder lawsuits that were settled for $70 million. They also were censured by the London Stock Exchange in 1990 for improper trading involving a British company called Mountleigh Group. Peltz, meanwhile, has been sued by shareholders over his compensation at Triarc Companies Inc., a public company he controls. He ultimately settled.

But at the Heinz meeting, Peltz and May emphasized their successes, most notably their $300 million purchase of Snapple in 1997 from Chicago's Quaker Oats Co. By cutting bureaucracy and refocusing spending on marketing and new products, Snapple grew strongly, and they unloaded it several years later for $1.5 billion, including debt.

"This is a world we're in that's about numbers - and numbers don't lie," Peltz said about his group's analytical approach.

Peltz's by-the-numbers investment strategy, however, is just what many in the Heinz camp fear. Several Pittsburgh natives and former Heinz employees ventured to the microphones during the annual meeting to politely and not-so-politely label him a short-term break-up artist or corporate raider.

It doesn't help that Peltz looks the part - especially next to Heinz's Johnson, the classic American executive. Peltz is tanned and well dressed, and quick with sardonic one-liners delivered in a gravelly New York accent. He also acts the part of a raider. After the meeting, chauffeurs picked up Peltz and his dark-suited posse in two black Cadillac Escalade SUVs and swept them away to the airport.

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