Job slashing at Heinz Foods and the role of private equity firms in corporate restructurin

Private equity firms are organizations made up of wealthy shareholders who band together to seek to influence, and in some cases take over, the boards of publicly traded companies. These groups are, in contrast to the stated focus of a corporate board, uninterested in the long-term viability of a company, instead focusing on the short-term gains to be made by increasing efficiency and shedding less profitable divisions. Once these gains are realized, these large investors often sell their shares and move on to a new target.

One private equity firm to make news in the last year is Trian Group, controlled by billionaire Nelson Peltz. In mid-2005, Trian used a threat to take over the board of Wendy’s International, Inc., to force the closure of many stores of its Baja Fresh chain, which had lost money the two previous years. This retreat resulted in strong gains in revenue and market share for competitor chains, such as McDonald’s-owned Chipotle Grill and Jack in the Box, Inc.-owned Qdoba Mexican Grill, but the short term cost-reduction to Wendy’s brought with it a more than 25 percent increase in share price.

In 2006, Peltz and the Trian Group have set their sites on Heinz Foods. With nearly 6 percent of the stock under their control, Trian is the second-largest shareholder, and is making a bid to replace five of the eleven board members with Trian employees, owners or family members. The Group is fighting to force Heinz to sell off some of its less profitable operations and lay off several thousand employees. Since this fight began in the early part of the year, Heinz stock price has increased more than 25 percent.

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http://wsws.org/articles/2006/jul2006/hein-j05.shtml