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Could An Ouster Of Mondelez's Irene Rosenfeld Mean A Deal For Buffett's Berkshire?

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Could An Ouster Of Mondelez's Irene Rosenfeld Mean A Deal For Buffett's Berkshire?
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On April 9, the Wall Street Journal reported, quoting sources, Mondelez International Inc (NASDAQ: MDLZ) is seeking to replace its CEO Irene Rosenfeld.

Does a potential exit by Rosenfeld mean more power for billionaire investor Warren Buffett, with whom Rosenfeld had run-ins in the past?

Update: On August 2, Rosenfeld said she will be stepping down in November.

The News

The Journal's report suggested that Mondelez's board is considering a replacement for Rosenfeld, as activists investors Bill Ackman, who runs the hedge fund Pershing Square, and Trian Fund Management's Nelson Peltz are breathing down the neck of the company. The snacking giant was a spinoff unit of the erstwhile Kraft (spun off in 2012), which has since the merged with Heinz to form Kraft Heinz Co (NASDAQ: KHC).

Mondelez cup of woes has overflowed in the recent past, as consumers have become health conscious, shunning the fast food snacks of the company. The company's sales have headed southward for three straight years now.

The report suggested Mondelez has hired staffing firm Heidrick & Struggles International, Inc. (NASDAQ: HSII) to look for a replacement and that internal candidates Tim Cofer, chief growth officer, and chief financial officer Brian Gladden, are also being considered for the position.

Following the report, sell-side analysts worked overtime, guessing whether Mondelez would be snapped up by its erstwhile parent Kraft Heinz.

Uninspiring Financials And Activists' Pressure

Revenues for 2016 were down 12.5 percent to $25.92 million, according to the company's recent 10-K filing. Biscuits, including cookies and crackers, accounted for 36 percent of the net revenues in 2016, while chocolates contributed 30 percent.

Ackman and Peltz have been issuing an ultimatum to the company to either resurrect its sagging sales and profits or sell out.

Despite all its fundamental issues, Mondelez bid for Hershey Co (NYSE: HSY) last year, but then backed off.

Buffett's Mondelez Ties

Buffett, who was the biggest shareholder in Kraft when it was contemplating a spinoff of its North American snacking business, has had several run-ins with Rosenfeld. When Rosenfeld pursued a hostile takeover of U.K.-based confectioner Cadbury in late 2009, Buffett was very vocal in opposing the deal.

He was particularly unhappy then that Kraft was paying for the deal through newly created shares, which he felt were undervalued. He also argued that the disposal of Kraft's pizza business to Nestle SA (ADR) (OTC: NSRGY) to facilitate the consummation of the deal was made in the most tax inefficient way, trimming the underlying value of the deal. Since the stock component of the offer price was less than 20 percent of the Kraft's share capital, the deal did not warrant shareholder vote. Subsequently, the deal was consummated in early 2010.

In protest of what he termed as a "dumb takeover," Buffett, who held a 9.4 percent stake in Kraft prior to the deal, trimmed his position by one-fourth.

During the Mondelez spinoff, Buffett was reportedly not happy with the name it adopted, which stands for Monde and Delicious.

Buffett then teamed up with Brazilian investment firm 3G Capital to buy Kraft through a merger with one of their previous buy, namely Heinz. Immediately after the merger, Buffett said in an interview to CNBC that Kraft Heinz would not be pursuing Mondelez. This is despite rumors that Buffett's ally 3G Capital was raising capital to make a big acquisition in the food industry.

"At Kraft Heinz, we've got our work cut out for us for a couple of years," Buffett said on CNBC. "I think it is quite unlikely to be doing a big acquisition in the next couple of years."

Notwithstanding Buffett's rebuttal, Mondelez shares spiked in December 2016 on rumors that Buffett would be revisiting a Mondelez buy.

Will Rosenfeld's Rumored Ouster Change The Dynamics?

The food industry is in a consolidation mode. There are rumors that Kraft Heinz might even consider a PepsiCo, Inc. (NYSE: PEP) buy. Mondelez's market capitalization is now $67.28 billion compared to Pepsi's $160.52 billion, with the valuation rendering the former attractive. Mondelez has some strong brands that could be profitably exploited. With Rosenfeld, with whom Buffett could not see eye-to-eye once, no longer in control, Buffett, for sure, may relish an Oreo snack.

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