Notes from Delivering Alpha 2013, Part III

My coverage of CNBC and Institutional Investor Magazine’s third annual Delivering Alpha Conference will come in four parts today.

Part I is here, Part II is here

Below, my notes from the afternoon sessions, I hope you enjoy! – Josh

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Panel – Alpha Agitator with Nelson Peltz. moderated by Andrew Ross Sorkin

Nelson Peltz, Founding Partner, Trian Fund Management. L.P.

Sorkin asks Nelson about breaking news that he has just amassed a large position in DuPont. Nelson demurs.

He is here to discuss Pepsi (PEP).

Stock is at its all-time high, Nelson thinks there is better opportunity. Sorkin pushes him about how Pepsi has already performed better than the Kraft (KFT)/ Mondelez (MDLZ) Foods spin-off that Peltz agitated for. “Mondelez margins are low, but it’s the growth side.”

Peltz wants Pepsi  to buy Mondelez for $35, all-stock. Peltz confirms a planned meeting with Mondelez management later this summer.

He says Pepsi could get to 175 per share if they listen to him (they are not excited to do this).

If Pepsi goes it alone and then separates snacks from drinks, the combined could be worth 145.

Sorkin: “There might be synergies but aren’t there also dis-synergies?”

“Pepsi has a history of bold moves – they bought a little potato chip company in the 1960’s – that little chip business is now two-thirds of the value of Pepsi. Problem is, they have beverage analysts comparing it to Coke.”

Thesis hinges whether or not chips and drinks end up on the same trucks or not around the world. Peltz says dis-synergies are always the first thing that happens – but good management takes care of those.

On leadership of Mondelez: Great strategically, operationally not so much. “Mondelez the name I hate, I think it costs us two multiples in terms of PE ratio. It sounds like a disease! I got Mondelez!” Crowd laughs.

Most investors have grown up staring at a Bloomberg screen. The difference between us and them is that we have run businesses. Most investors look at the balance sheet first. We start with the income statement. Sales up, expenses down – that’s our motto.

Peltz is not looking to collect any CEO skulls – “These are big companies and its time for us to open a dialog.” He notes that a majority of Pepsi’s largest shareholders have been in on his prior deals and target companies.

He emphasizes that he is a long-term holder, not a raider.

On Dell – “I’ve gotta go with Carl, Carl’s my buddy.”

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Panel – Health, Wealth and Happiness moderated by Michael Peltz (Editor, Institutional Investor Magazine Group)

• Jacob Gottlieb, Managing Partner and Chief Investment Officer, Visium Asset Management
• Kris Jenner, Senior Partner, Rock Springs Capital
• Larry Robbins, Portfolio Manager and Chief Executive Officer, Glenview Capital Management

Kris Jenner (not Kardashian mom, different person) – no big investment implications because of the delayed implementation of Obamacare.

Larry Robbins of Glenview says the opportunity in Obamacare is two-sided, winners and losers. Larry is building massive stakes in hospitals. “Most stable and defensive growth industry we know of.” Opportunity in hospitals predicated on their access to capital markets, ability to buyback stock. His stocks are here, FYI: Insider Monkey

Consensus that there will be a lot of money – “oxygen” – coming into the system, but a rising tide doesn’t lift all boats.

Jenner: “We’re in the very early stages of an innovation cycle” for medicine and health tech over the next five or ten years. The basic question is “how do we pay for it?”  Mentions Gilead (GILD) being on the cusp of dramatically improving the treatment of Hepatitis.  Also mentions Pharmacyclics (PCYC). On pharma innovation – there’s not enough innovation relative to the size of those companies’ shareholder bases (they’re too big for new products to matter as much).

Robbins also likes Thermo Fisher (which Cooperman mentioned this morning as a fave holding).  TMO is selling tools and equipment for drug discovery, science, research. Growth slowed in the space this year because of sequestration cuts hitting the NIH’s budget. Robbins says that organic growth will recover for the space in 2014. Also, great balance sheet engineering story with share buyback.

Jacob Gottlieb of Visium says hospital mergers will begin and insurance consolidation will make sense thanks to scale advantages under Affordable Care Act.

Jenner is bullish on pharma acquisitions of biotechs, “the drumbeat will continue.”

Larry Robbins believes that for-profit companies will be a major force in keeping healthcare costs lower than the most dire predictions.

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Stay tuned for Part IV with Mike Novagratz (Fortress), Carl Icahn and more!