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Nelson Peltz, activist marketer

When the investor takes stakes in companies like Tiffany and Heinz, he changes the sales pitch as well as the sales.

By Suzanne Kapner, writer
Last Updated: July 10, 2008: 10:17 AM EDT
Nelson Peltz

(Fortune Magazine) -- The job description for a corporate raider is simple: Buy stock in mismanaged companies, and then growl at them until management pays you a lot of money to go away - or you make management go away. Brand reinvention is usually not part of a raider's attack plan, unless you're Nelson Peltz. Peltz, 66, spends hours wandering supermarkets, malls, and fast-food restaurants with his ten children (ages 5 to 45) to get investing ideas, which he later chews over with partners Peter May and son-in-law Ed Garden, who together run Trian, a hedge fund founded in 2005. According to people familiar with the fund, Trian now has more than $5 billion under management, including investments in companies such as Heinz, Wendy's, and Tiffany.

"If you get the brand right," Peltz tells Fortune, "you always get more value as a multiple of cash flow."

Take the case of Tiffany (TIF). When Trian disclosed a 5.5% stake in February 2007 - an investment that now stands at 8.4% - the retailer known for its robin's-egg-blue boxes was already quite lean. In meetings with Tiffany chief executive Michael Kowalski, Peltz and May, who obtained a board seat two months ago, expressed concern that Tiffany had become too reliant on gift giving and was missing an opportunity to attract women shopping for themselves. They also suggested that Tiffany broaden its appeal by selling watches in stores other than Tiffany's. Some of those ideas were similar to plans the company had been working on internally. For instance, Tiffany had begun discussions in 2006 with Swatch Group, with which it now has a joint venture. "Nelson's belief in the expansion potential of our watch business was certainly an endorsement of our efforts," Kowalski says.

Additionally, Tiffany plans to open smaller stores (2,000 square feet vs. 5,000 square feet for full-line shops) that won't carry engagement rings - a move designed to promote more self-purchases. Although the stock has traded off in recent weeks over fears about the global economy and stood at $41 earlier this month, roughly level with where Trian first disclosed its stake, most observers consider Peltz's involvement a success. "Tiffany had done the cost cutting," says J.P. Morgan analyst Brian Tunick. "So it was looking at how to grow the business."

Peltz's relationship with Wendy's International (WEN) was far less collegial. After disclosing a 5.5% stake in December 2005, Peltz waged a public battle with then-chief Jack Schuessler, who resigned in April 2006. Peltz pushed successfully for a spinoff of the company's Tim Horton's coffee chain and sale of ancillary brands, including Baja Fresh. His complaint with Wendy's own branding was that the company had failed to promote its quality: It alone of the Big Three fast-food chains uses fresh beef, paying a nickel a pound more than it would for frozen, by some estimates.

This spring Peltz agreed to buy Wendy's for $2.34 billion. Although he won't discuss his plans until the deal closes, Wendy's will probably rebrand itself as a purveyor of quality.

Another insight came from Peltz's fast-food outings with his children. They disliked tearing open ketchup packets, giving Peltz an idea for "peel and dip" packaging. He floated the idea in a critique of H.J. Heinz (HNJ) published in May 2006, around the time Trian amassed a 5.4% stake (now 3.1%). Among Peltz's other complaints: Heinz was skimping on marketing and was slow to introduce new products.

Soon after Garden met with Heinz representatives later that month, the company unveiled a strategic overhaul that included many of Trian's ideas. Heinz plans to introduce 200 products this year, double 2007's level, including frozen Ore-Ida mashed potatoes and, yup, new ketchup packs. The company also sponsored the Nathan's Famous Hot Dog Eating contest on Coney Island. These changes have contributed to a 16.5% rise in sales and a 30.9% increase in profits over the past two years. So when it comes to fixing downtrodden brands, Peltz has shown he knows how to teach even old dogs new tricks.  To top of page

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