The credit gods in the form of Standard & Poor's were a bit cautious Tuesday over a recent plan from two of Heinz's shareholders to boost their company's stock price.
Unhappy that Heinz's stock has appreciated as slowly as its ketchup flowing out of its glass bottle, Trian Fund Management LP and Sandell Asset Management Corp. proposed an aggressive plan that includes share repurchases, dividends, divestitures and taking on more debt.
In response, the New York-based credit rating agency said it may cut its 'A-' investment grade rating — its seventh highest rating — on Heinz. A drop in Heinz's credit rating means that it would pay more in financing debt through higher interest rates.
With the company currently holding $4.1 billion in debt, the duo said Heinz should increase its leverage ratio to 3.5 times Ebitda from management's current target of 2.4 times Ebitda. Clearly S&P disagrees with the dissident shareholders.
"Credit measures are already weak for the rating," Standard & Poor's credit analyst Nicole Delz Lynch said. "We are concerned that the company will no longer be able to improve its financial profile as planned if outside pressures cause management to pursue more equity-focused actions, specifically, an increase in leverage."
Although Trian and Sandell are not satisfied with Heinz' status quo, the Pittsburgh-based company has not stood pat over the last couple of years. The food company has gobbled up HP Foods Group for $820 million in cash,
privately-held Nancy's Specialty Foods Inc. and
Truesoups LLC.
Not to be undone, Heinz said it would reveal a plan of its own to raise stock valuation on June 1 — when it releases fourth-quarter and full-year earnings. — Gerald Magpily
See Pittsburgh Business Times
Continue reading below
