Oreo maker faces billionaire squeezers, labor protests

Mondelez, the current corporate name of the $32 billion (yearly sales), suburban Chicago-based, multinational maker of Oreo cookies, Ritz crackers, Cadbury candies, Trident gum and other brands, has for a couple of years now been shutting down plants and firing hundreds of longtime workers in Philadelphia and Chicago, moving some U.S. production to Mexico, and pumping billions into share buybacks and dividends to prop up the stock for demanding investors like Nelson Peltz's Trian Global Partners, to whom Mondelez granted a board seat earlier this year.

The cuts have provoked a "Boycott Oreo" campaign both among Philadelphia elected officials and Chicago labor activists outraged that hundreds of veteran workers are losing their jobs while CEO Irene Rosenfeld collects over $20 million a year. The contrast between billionaire owners and multimillionaire bosses, and laid-off bakers, has made Rosenfeld a target for politicians like U.S. Rep. Brendan Boyle, D-Pa., seeking a face to represent what he calls "corporate greed on steroids."

But CEO Rosenfeld also faces what for her are probably more immediate pressures: Earlier this month yet another billionaire activist, Pershing Square Capital boss William Ackman, said he paid $5.5 billion to buy 7.5 percent of Mondelez. "We can safely assume that Mr. Ackman is not on board to campaign for additional Oreo flavors," writes debt analyst Dave Novosel, in a report to clients of Gimme Credit LLC. "Mr. Ackman is reportedly keen on cost-cutting."

Hasn't Mondelez been squeezed enough? The company announced $3 billion in cost cuts in 2013, but earnings (before interest, taxes, depreciation ) "are not any better than they were three years ago," Novosel writes. And debt leverage ratios are up, "because share repurchases have far exceeded free cash flow," even as Mondelez seeks to downplay merger, restructuring and write-off expenses.

Under Rosenfeld, extra marketing, advertising and sales spending have cancelled financial gains from plant closings, leaving Mondelez to rely on "price increases" to boost revenues, Novesel concludes. "But we wonder how long price increases can continue."

With billionaire squeezers demanding short-term profits, deal rumors "are running rampant," and bond investors are demanding higher premiums on Mondelez debt, Novosel notes. The rumors are the kind of debt-fueled big-deal combinations that make bondholders nervous: Will Mondelez combine with Pepsico's snack business, or (re)unite with Kraft Heinz? Given the uncertainty -- and the likelihood of mediocre performance amid mounting debt, currency pressures (the strong U.S. dollar hurts profits from abroad) and stock buybacks -- Novosel recommends investors sell off their Mondelez bonds.