By Garrett Baldwin

Bill Ackman, Carl Icahn, and other activist investors made headlines in 2014, taking aggressive stock positions and effecting change in companies and unlocking new value.

Activist investors as individuals, a group, or as a fund acquire large amounts of a public company’s stock. In many cases, they attempt to obtain positions on the target’s board in order to make changes. Typically, this stake is at least 5% of the firm, and these investors announce their intentions to engage company leaders on their intentions, which may include proposing management changes, pushing for spin-offs, mergers or acquisitions, or implementing strategic or operational changes. In each case, the activist investor typically believes that his or her strategy can fix a nagging problem and boost share value.

For some, the strategy pays off. And for others, it really pays off.

Bill Ackman’s Pershing Square Capital Management returned 32.8% to investors in 2014. Not only does activist investing dominate the news, but it can also be extremely profitable.

Now a number of activist investors are shifting their attentions to the food and agribusiness sector.

Here are three activists attempting to shake up companies in 2015, and why these deals matter.

Nelson Peltz Challenges DuPont Company to Split Up

It takes a lot of confidence to take on one of the nation’s oldest corporations and challenge its board of directors for a seat at their table.

But many investors haven’t heard of Nelson Peltz, founder of New York-based hedge fund Trian Fund Management. L.P. To those who do know Peltz, he was an architect of the 2011 spinoff of Mondelez International from Kraft Foods. Today, the activist investor is the Chairman of the Board at Mondelez, a global snack company.

Now, Peltz is turning to the chemical business, and one of the agricultural sectors’ behemoths. He began building a stake in DuPont in August 2013 and called for the company to begin spinning off assets. At the center of his first demands were for DuPont to sell or spin off its agriculture business, since it was highly valued and generating significant growth for the firm.

With DuPont’s ag business generating half of the company’s operating income in 2013, shareholders argued that the company was better off creating a standalone giant to compete against Monsanto.

But the company’s CEO, Ellen Kullman, who took over the company in 2009 and has been central to the firm’s stock beating the S&P 500 by nearly 50% since her arrival, has refused to entertain a spinoff.

Peltz has since dug in.

In early January, Trian Management  launched a proxy fight against DuPont Company. Peltz nominated four new, Trian-friendly candidates to the firm’s board of directors and announced intentions to breakup the company and boost share value.

Today, Peltz is calling for DuPont to break up into two distinct companies. The first would focus on higher-growth opportunities in agriculture, nutrition, health, and industrial bioscience. The second firm would have a cyclical focus in performance materials, safety and protection products, and electronics and communications materials.

Peltz argues that his plan would fuel a stock double. But some defenders of DuPont argue that the math just doesn’t add up. One thing is for sure… this battle will heat up in the New Year.

By this time next year, we could be looking at a brand new company whose biggest driver is its agricultural chemical specialty.

Bill Ackman Wants Bigger Profits in Animal Tech

Bill Ackman has made headlines for two years, waging a very public war against health-marketing firm Herbalife Ltd. Since 2012, he has shorted the company and publicly charged it with being a Ponzi scheme that targets low-income consumers. The firm is now under investigation from the Federal Trade Commission and the Securities Exchange Commission.

Ackman’s hedge fund Pershing Square Capital Management maintains a very tight portfolio of select stocks in which its manager perceives holds significant upside and value. That portfolio includes fast-food giant Burger King Worldwide and logistics giant Canadian Pacific Railway.

 

But one of his most recent positions that gained headlines was an 8.5% stake in animal-health firm Zoetis Inc. In a letter to Pershing shareholders in December, Ackman outlined why his company recently built a large stake in the company alongside his former protégé Scott Ferguson and Sachem Head Capital.

The firm is a manufacturer of animal medications and vaccines that are purchased by veterinarians, livestock farmers and other animal owners. In 2013, the firm spun off from pharmaceutical giant Pfizer Inc.

Citing the company’s lack of competition from rivals and generic drugs, Ackman praised the firm’s business model. Due to its unique position in the market, Ackman called Zoetis a “scarce asset.”

More important, it’s a centerpiece in a booming market. The market for animal-health products now sits at $22 billion, and will likely increase by nearly 5.7% this year, according to private capital firm Technology Acceleration Partners.

The market has seen some big deals in this white-hot market. In mid-January, medication-distributor AmerisourceBergen Corp announced plans to purchase MWI Veterinary Supply Inc for roughly $2.5 billion.

Last April, Eli Lilly and Co’s Elanco became the second-largest company in the industry after it purchased Novartis AG’s animal health business for $5.4 billion.

And with profit the end goal, many analysts predict that Ackman could seek to force the company to sell itself to another pharmaceutical giant like Bayer AG or Merck & Co.

Of course, the intentions could be more benign to increase shareholder value. This includes pushing for stock buyback programs, increased dividends, or simple restructuring.

But the company isn’t taking any chances. As a result, Zoetis adopted a poison pill strategy to block a hostile takeover. Under this one-year plan, should any one shareholder acquire more than 15% of the company, other shareholders will be able to buy preferred stock at a discounted price.

With so much profit on the line in such a booming sector, it’s hard to imagine that this battle will be ending anytime soon.

Other Activists Prepare to Make a Name

No public companies are safe from the pursuit of an activist investor.

And in the food and agribusiness sector, wherever value can be unlocked in the value chain, that’s where you’ll find fund managers looking to pry through financial statements and operations channels.

Which presents two additional stories at the end of the value chain: At the fork.

Currently, Sardar Biglari, a 37-year-old Iranian Chairman and CEO of Biglari Holdings, is struggling to maintain control of his own organization. Biglari is one of the most fascinating executive stories in the world today. At 18, he started his company with $15,000.

Today, he has 22,000 employees and maintains control of Maxim Magazine, Steak and Shake, Western Sizzlin’ steakhouses.

In 2013, Biglari launched his own proxy fight in his pursuit of Cracker Barrel. But the company fought back, and Biglari was denied.

Now, he’s facing a proxy threat against the company he won in a similar battle and renamed after himself. A Minneapolis-based firm called Groveland Capital is attempting to replace all six six board seats at Biglari Holdings, a move that would likely upend the founder from his role as chairman.