Shares of Kraft Foods Group surged more than 35 percent on Wednesday, following the news that it agreed to merge with H.J. Heinz Co. in a deal that will create the third-largest food and beverage company in North America, Kraft Heinz Co.
Under the deal, Kraft shareholders will receive stock in the newly combined company and a special cash dividend of $16.50 per share, which represents 27 percent of Kraft’s closing price as of March 24.
And the biggest hedge fund beneficiaries from the deal were . . . well, no one. As it turns out, Kraft is the best stock to hold these days that no hedge fund manager owns, or owns much of, at least judging by the previous quarter’s filings. Not one hedge fund ranked among the top 25 investors in Kraft at the end of the fourth quarter, according to an Alpha analysis.
The largest hedge fund firm to own the stock was Boston-based Adage Capital Management. However, it owned just 2.6 million shares, or only 0.39 percent of the total outstanding. The firm also had sold nearly 20 percent of its stake in the fourth quarter. In fact, if the folks who run the firm didn’t even realize they owned the stock, you couldn’t blame them, since it ranks No. 68 in their portfolio.
The next largest hedge fund owner is Chicago-based Citadel, which happens to be Kraft’s 42nd-largest shareholder. The stock ranks only No. 168 in Citadel’s portfolio. However, the firm did nearly triple its stake in the fourth quarter.
The handful of other hedge funds that own the stock held very small pieces that accounted for only puny parts of their portfolios.
Several hedge fund firms did own positions in Kraft in the fourth quarter but liquidated their stakes by the end of the period. They include New York–based Two Sigma Investments, which sold its entire stake of roughly 483,000 shares in Kraft.
It is puzzling that there is so little hedge fund presence in the stock. Kraft’s market capitalization of roughly $36 billion before the deal was announced was certainly not a deterrent, although hedge funds are not shy about buying small-cap stocks if they think they will do well.
Sure, Kraft is not exactly the next hot Chinese Internet company. However, activist firms like Pershing Square Capital Management and Trian Fund Management are historically partial to large, well-known consumer brands.
Kraft Foods Group, however, has been public only since October 1, 2012. It is the North American grocery business spun off from Kraft Foods at that time. Simultaneously, Kraft Foods renamed its surviving and faster-growing snack foods business Mondelez International.
For nearly two years Nelson Peltz’s Trian has been pushing for Mondelez to merge with PepsiCo. Since the spinoff, however, Kraft’s stock has nearly doubled. During the same period, Mondelez has gained only about 30 percent. In this case, Peltz may have picked the wrong horse.
