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Nelson Peltz takes on Sysco

Nelson Peltz takes on Sysco

This post is part of the On the Margin blog.

Nelson Peltz is aiming at a big, new food target: Sysco Corp.

The activist investor’s Trian Fund on Friday disclosed in an SEC filing that it has taken a 7-percent stake in the giant food distributor and has had discussions with the Houston-based company’s executives.

“Despite having a number of competitive advantages, (Sysco’s) operating and financial performance has underperformed relative to its potential,” Trian’s filing says, “and that it should adopt strategic and operating initiatives to improve operating margins, enhance working capital efficiency, consider the use of prudent amounts of incremental leverage to increase the amount of capital returned to shareholders, and take steps to better align management compensation with corporate performance.”

In a statement, Sysco said that it “welcomes collaborative discussions with investors who share our interest in creating value by marketing and delivering great products to our customers with exceptional service. We have recently engaged with Trian and expect to continue a constructive dialogue.”

Peltz is no stranger to the food business, of course. Trian controlled Arby’s in the mid-2000s when it targeted Wendy’s, ultimately engineering an acquisition of the burger chain and a combination of the two concepts. Three years later, Wendy’s sold Arby’s to Roark Capital and became The Wendy’s Company.

Peltz remains chairman at Wendy’s, where the company is in the process of implementing several investor-friendly initiatives such as refranchising and share buybacks.

Trian recently reduced its holdings in Wendy’s.

And Wendy’s, by the way, is no stranger to Sysco: It’s a huge customer of the food distribution giant.

Sysco is coming off the failure of its merger with US Foods. The nation’s largest broadline distributor agreed to buy US Foods, the second biggest, in December 2013. The federal government ultimately sued to block the merger and in June, a federal judge delayed the deal, prompting the two sides to walk away.

Sysco recently disclosed that the merger and termination costs would total $693 million, including a $300 million termination fee to US Foods.

Trian bought 22.8 million shares of Sysco for a total of $842 million. Sysco’s stock is up 7 percent today on the Trian news, and those shares are now worth more than $940 million.

In its filing, Trian says it met with Sysco’s CEO, Bill DeLaney, as well as Chairman Jackie Ward, on potential changes “that would enhance value” for Sysco sharesholders.

Those changes include issues regarding capital structure, capital allocation, corporate governance and board structure. Trian also mentioned the possibility of taking seats on the Sysco board of directors.

"We believe Sysco is extremely well positioned to execute our strategy in a manner that will support the success of our customers, profitably grow our business and improve our return on invested capital,” Sysco’s statement said. “As we noted in our most recent earnings announcement, we look forward to providing additional details regarding our strategic initiatives during our Investor Day on Sept. 15, 2015."

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