Kraft move may signal return of the corporate raider

To most people, “the untouchables” brings to mind the intrepid 1930s G-Men who hunted down Al Capone or perhaps the down-and-out in India’s caste system. To Nelson Peltz, chief of fund manager Trian, which this week announced a stake in Kraft Foods, it is the top tier of companies worth more than $50bn that activist investors such as himself have, until recently, had difficulty in pressuring.

If his name rings a bell then it should. Mr Peltz was among Wall Street’s leading corporate raiders in the 1980s – an era memorialised on celluloid in Oliver Stone’s morality tale Wall Street but also in several non-fiction books as gripping as any novel. Even a quarter of a century later, some accounts of that swashbuckling period remain among the best-known business tomes. Today’s readers, de-sensitised by subsequent scandals such as Enron, Tyco and Madoff, are fascinated more by the tales of brash upstarts, often with immigrant or working class backgrounds, taking on establishment figures heading brand-name companies than the insider trading prosecutions of Ivan Boesky or Michael Milken.

Mr Peltz, along with fellow parvenus Carl Icahn, Ronald Perelman and Meshulam Riklis, features prominently in Connie Bruck’s classic account of the 1980s takeover wave, The Predator’s Ball. In it, she describes the raiders’ chief enabler Drexel Burnham Lambert as “the brass knuckles, threatening, market-manipulating Cosa Nostra of the securities world”. Mr Milken, Drexel’s junk bond king, was shown an advance proof and offered to pay Ms Bruck prior to publication for all the copies she hoped to sell, presumably as kindling for a bonfire. Given the option, he might well have tossed her on top for good measure.

These financial minnows with mere tens of millions of dollars of hard-earned cash at their disposal could target far larger prey backed by Drexel’s well-oiled junk bond machine. Perhaps Ms Bruck’s mafia comparison is excessive, but most corporate chieftains who tangled with Mr Milken’s acolytes wound up sleeping with the metaphorical fishes.

That era’s signature deal, the leveraged buy-out of RJR Nabisco immortalised in Barbarians at the Gate, was so massive that it was then far out of Mr Peltz’s league and foreshadowed the fund-driven deals that would emerge in the next era of cheap money two decades later. Although the most recent buy-out boom has names attached to it – Stephen Schwarzman, David Rubenstein and the protagonist of the RJR drama, Henry Kravis – they are more closely associated with the pools of money they control (Blackstone, Carlyle and KKR, respectively). These private equity buyers also were more likely to be welcomed with open arms rather than rebuffed or bought off by their corporate targets as was so often the case in the 1980s.

The end of the latest bubble era has brought raiders, now benignly dubbed “activist investors”, back into the limelight. Whatever the moniker, they still try to profit from amassing stakes in underachieving companies rather than relying on leverage alone. With more firepower than in the 1980s (Trian manages about $3bn) and more public sympathy, they can be fearsome.

In recent years, Mr Peltz has agitated for value creation at Cadbury Schweppes, HJ Heinz, and Family Dollar. After gaining board seats and reducing his stake ahead of the Cadbury takeover, he is again stalking Kraft, a bona-fide untouchable with its $60bn market value. The story of his fiery first meeting with Heinz’s chief in 2006, when he announced rather than requested board seats, was pure Gordon Gekko.

Of course there are activist fund managers out there with more funds and better name recognition thanks to the CNBC generation – Bill Ackman of Pershing Square for example, who was a schoolchild when Mr Peltz launched his first hostile takeover. But the mystique and street smarts of an investor who cut his teeth when activism elicited comparisons with organised crime are incomparable. Who better to make a chief executive an offer he can’t refuse?