Business: US Food Holdings markets and distributes fresh, frozen and dried food and non-food products to food service customers in the United States. The company’s customers include independently owned single and multi-unit restaurants, regional concepts, national chain restaurants, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations.

Stock market value: $8.3B ($37.73 per share)

Percent ownership: 5.13%

average cost: 33.71 USD

Activist comments: Sachem Head was founded in 2013 by Scott Ferguson. Scott Ferguson was the first investment professional to work in Pershing Square for nine years. Sachem Head has a solid history of value investing, but we believe that they have truly achieved a leap in radicalism by investing in Olin in 2020. Scott Ferguson got a board seat on Olin-his first board seat on a public company in an investment that was not part of the group-and created tremendous value in his position on the board. His next activist, 13D, is at Elanco, where he once again serves on the board of directors and is creating value there. Getting a seat on the board means commitment and contribution. This philosophy and style are indeed worthwhile for Sachem Head.

Sachem Head Capital holds 5.13% of the shares for investment.

Sachem Head cleverly stated in its 13D document that it may be interested in board seats. It stated in the document that Sachem Head has reached an agreement with Bernardo Hees, who has agreed to serve as Sachem Head’s advisor and potential director nominee. This makes sense, because Sachem Head founder Scott Ferguson has served on the boards of two listed companies, and Hees has extensive industry and operational experience.

But to truly understand Sachem Head’s paper, we must go back to August 2015, when Trian submitted a 13D application to USFD’s competitor Sysco, and Nelson Peltz served as a board seat, by improving operating margins and paying more attention to Sysco’s changes. High value creates important value for shareholders. Margin business. Three years later, in 2018, Sachem Head held a 2% stake in USFD and stated in a letter to investors that USFD could benefit from many of the same steps that Sysco took at the urging of Trian. Sachem Head further stated: “With the help of an aggressive shareholder, Sysco has significantly improved its profitability by improving pricing discipline and paying more attention to high-margin private label products and lucrative small restaurant customers… American Foods Companies can implement many of the same measures while innovating in other areas, such as technology and central replenishment.” In 2018, Sachem Head predicted that the company could generate $3 per share in 2020 at a stock price of $45. As of 2020, gross profit margin and operating profit margin are both worse than in 2018, with earnings per share of US$1.66 and stock price of US$36.08. Therefore, there is more work to be done and more opportunities to create value.

However, although Scott Ferguson does have extensive rights protection experience, he has served on the boards of two listed companies and does not have the operating experience of Trian’s Nelson Peltz (very few rights defenders do). Therefore, he wisely cooperated with Hees, who has extensive operating experience. Hees is a former partner of 3G Capital and the former CEO of Kraft Heinz and HJ Heinz from 2013 to 2019. Interestingly, Nelson Peltz served as a director of HJ Heinz and served on the special committee of the board of directors negotiating 3G Capital’s acquisition of Heinz in 2013. Two years later, Peltz launched a radical movement in Sysco. Two years after Hees left Heinz, he started working with Sachem Head of Sysco’s competitor USFD. The blueprint for this movement has been written, and Sachem Head seems to have recruited the right participants to create shareholder value. The only question left is whether the company will look at it this way?

Ken Squire is the founder and president of 13D Monitor, a research service organization for shareholder activism, and the founder and portfolio manager of 13D Activist Fund, which invests in activist 13D portfolios. American Food Holdings Corporation is owned by the fund.

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