Kraft in deal with Peltz's Trian

By Brad Dorfman

CHICAGO (Reuters) - Kraft Foods Inc (KFT.N) on Wednesday struck a deal with activist investor Nelson Peltz, adding two board members nominated by his Trian Partners and avoiding a potential proxy battle.

Kraft said Trian, which holds a roughly 2.4 percent stake in the food company and has reportedly been lobbying for changes for several months, agreed to support Kraft's board of directors' full list of nominees at its next two annual meetings.

In return, the maker of Oreo cookies, Oscar Mayer meats and dozens of other brands named Lois Juliber, retired vice chairman of Colgate-Palmolive Co (CL.N), and Frank Zarb, managing director of private equity firm Hellman & Friedman LLC, to its board, expanding the number of directors to 11 from nine.

"It means they probably didn't want a very public fight," Gregg Warren, analyst at Morningstar, said of Kraft's decision. "If you don't want to have a fight with them, you might as well have them on the board."

Last year, H.J. Heinz Co (HNZ.N) waged an acrimonious, costly proxy battle with Peltz and Trian, only to see Trian win two of the five seats it sought on the board.

Peltz's Trian Fund has pushed for Kraft to jettison unsuccessful brands and find better uses for its cash, a source said in late June.

Earlier this week, the Wall Street Journal reported that Kraft was close to an agreement to sell its Post cereals business to Ralcorp Holdings Inc (RAH.N) for $2.8 billion.

Kraft declined comment on that report, but Chairman and Chief Executive Irene Rosenfeld has said the company, which has sold some businesses in recent years, would consider other divestitures.

Kraft said Zarb and Juliber were selected by the company . and supported for nomination by Trian.

"Trian Partners has developed a positive relationship in recent months with Irene Rosenfeld," a Trian spokeswoman said. "We support Ms. Rosenfeld's previously announced initiatives to further enhance performance. Given Kraft's terrific portfolio of brands, Trian believes there are numerous opportunities to continue to enhance shareholder value."

Up until this year, Kraft was somewhat insulated from the pressure of outside investors because most of its stock was owned by Altria Group Inc (MO.N), analyst Warren noted, but Altria spun off Kraft in March.

"Now, it's not the same story and the last thing she (Rosenfeld) wants is somebody rankling up the masses, in this case, the money managers and institutions who own the stock," he said.

Kraft shares closed at $33.33 Wednesday, down 6 cents on the New York Stock Exchange.

(Additional reporting by Nichola Groom)