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Peltz' Heinz profit fails to impress investment experts

| Monday, Feb. 8, 2010

Billionaire investor Nelson Peltz, who waged a nasty proxy battle over control of H.J. Heinz Co., has so far realized a profit of almost $50 million for himself and his partners from their investment in the iconic ketchup and food maker.

They could make a bigger profit on their remaining stake, depending on the performance of Heinz's stock, according to a Tribune-Review analysis of Securities and Exchange Commission filings.

But so far investment experts are underwhelmed by Peltz's return — given the magnitude of the battle for control of Heinz nearly four years ago, when he vowed to shake Heinz out of its lethargy.

Assuming another $50 million profit on his remaining shares, Peltz could make a $100 million return on an investment of about $500 million.

"A 20 percent return on investment for most guys like Peltz, is not worth the time, aggravation and cost of money. They aren't looking for a return 1 percent above the Treasury rate," said Greg Drahuschak, market strategist in the Pittsburgh office of Janney Montgomery Scott.

Peltz has been gradually winding down his stake, selling nearly 9 million Heinz shares in the past two and a half years. Through his Trian Management L.P. investment vehicle, he holds or controls about 1.5 percent of Heinz's stock. He once controlled about 6 percent of the outstanding shares.

When Peltz started buying in early 2006, Heinz shares traded at about $35.70. The shares closed Friday at $43.18.

"Nelson Peltz is an active and involved board member who has added great value to Heinz," said Heinz spokesman Michael Mullen. "Additionally, he has worked very collaboratively with both the board and Heinz's management team."

Peltz won a seat on the Heinz board in August 2006 by amassing control of 18 million shares. He used that clout to lobby for changes to increase profits and the Heinz stock price, which had been lagging. Peltz sought five board seats but only won positions for himself and Michael Weinstein.

"Nelson Peltz is an engaged board member at Heinz, and Trian continues to be very supportive of Heinz's plans to increase shareholder value," said Trian spokeswoman Anne Tarbell. She declined to comment on the figures in this story.

Peltz was not available for comment.

"I think Peltz and the board work well together," said New York analyst Erin Ashley Smith, who follows Heinz for Argus Research Corp. "I think he's been a positive influence while on the board and has helped the company."

For the Heinz proxy fight, Peltz's stake was amassed through stock purchases that began in February 2006.

During the next six months, Heinz and Peltz-led investors waged a war of words in the national financial media to influence shareholders on who had a better plan to increase sales and profits.

Trian's total stake in Heinz later increased to nearly 19 million shares, or 6 percent of all outstanding Heinz stock, according to an Oct. 12, 2007, Trian Management filing. Nearly 5.4 million of those shares belonged to Sandell Asset Management Corp., which had granted Peltz control of the stock for the proxy fight.

Without Sandell's shares, that put Peltz's total investment at an estimated $509.8 million, acquired at an average cost of $37.46 a share, filings show.

Since October 2007, Peltz has sold more than 8.8 million shares for more than $380 million, or about $43.13 a share, filings show. The share price in those transactions ranged between $33.06 and $51.18.

On each share thus far sold, Peltz has turned a profit of about $5.67 -- determined by subtracting the average price of $37.46 a share from the $43.13 per share sold. The total profit works out to about $50 million.

Peltz still controls nearly 4.9 million Heinz shares, or 1.54 percent of shares outstanding.

If Heinz's share price remains above $43.13 a share, Peltz would yield at least an additional profit of about $27.8 million.

Still, the overall profit from Peltz's Heinz venture doesn't impress some experts.

"He hasn't even beaten the market — for what he does, a 20 percent return is horrible," said Mal Polley, chief investment officer with Stewart Capital Advisors LLC, of Indiana, Pa. "That's about a 6 percent annualized rate of return. ... If a money manager can't get a 7 percent return — he's fired."

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