Shares of food distribution company Sysco Corp. shot up 7% Friday on news that billionaire hedge fund manager, Nelzon Peltz, has taken a large stake and is pushing for changes that could boost the stock.
The news sent shares of the Houston, Tex., firm — ticker SYY — up 7.4% to $ 41.38 a share.
Peltz’s hedge fund firm Trian, which recently lost a major battle for board seats at chemical giant DuPont, acquired a 7% stake in Sysco because it believed the stock was undervalued and “represented an attractive investment opportunity,” the firm said in a regulatory filing Friday. Trian wants the firm to improve its operating margins, or the cost of doing business, it said.
Trian representatives, including Peltz, met with Sysco’s officials on Friday to discuss the hedge fund’s views, said Charley Wilson, a spokesman for Sysco, which is based in Houston, Texas.
"We have recently engaged with Trian and expect to continue a constructive dialogue,” Sysco said in a statement. "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. 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 September 15, 2015."
At Friday’s meeting, Trian complained that Sysco’s operating and financial performance has “underperformed relative to its potential,” and suggested that it adopt “initiatives to improve operating margins,” the hedge fund said in a filing with the Securities and Exchange Commission.
Among Trian’s recommendations are:
*”Enhance working capital efficiency,” or the amount of money the company has to do business with.
*Use leverage, or borrowed money, “to increase the amount of capital returned to shareholders”
*Better align management compensation with corporate performance
Trian did not say whether it will fight for seats on Sysco’s board. But the hedge fund firm said it discussed the food distribution company’s board structure and composition, including board representation for Trian. Trian officials met with Sysco CEO William Delaney and non-executive chairman Jackie Ward, the firm said in its filing.
In May, Peltz lost a battle for board seats on DuPont, which it had proposed splitting into three parts.
Activist investors like Peltz are also facing criticism that they are pressuring companies to spend money on investors through dividends and buybacks rather than investing on long-term growth.
Follow Kaja Whitehouse on Twitter: @kajawhitehouse.
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