PepsiCo without Pepsi? One Investor Thinks So

Should PepsiCo spin off its beverage division and focus on the quickly growing snack division?  One investor believes that the Consumer Goods conglomerate should do just that in order to ensure increased value for years to come.  In a 37 page letter to the PepsiCo Board of Directors, activist investor Nelson Pelz implored the company to split the company into “two leaner and more entrepreneurial companies”

Two Companies from PepsiCo: Beverages and Snacks

Peltz said a standalone snacks business would give investors strong growth in sales, margins and free cash flow, while an independent drinks business would generate strong and stable flow of cash that could be returned to shareholders.

Peltz’s investment firm will begin meeting shareholders immediately to gather support for a split, the letter said.

PepsiCo said last week that it had decided not to separate its beverage business in North America after conducting an exhaustive review involving external consultants and bankers.

“Decoupling our beverage and snack businesses in North America would significantly reduce our relevance to our customers,” Chief Executive Indra Nooyi said.

The company, which also sells Gatorade and Tropicana juices, reported a better-than-expected quarterly profit last week and maintained its forecast of 7 percent growth in full-year adjusted earnings.

Peltz’s investment firm, Trian Fund Management, owns about $1.2 billion of PepsiCo stock, the letter said.

“Trian does not agree with the outcome of PepsiCo’s strategic review, particularly following another quarter of uninspiring performance and weak 2014 guidance,” Peltz wrote.

Trian held about 0.8 percent of PepsiCo as of December 31, according to Thomson Reuters data.

Peltz, who began his campaign to split up PepsiCo last July, has also previously pushed the company to create a snack food giant by acquiring Oreo cookie maker Mondelez International, but he dropped that idea after he won a seat on the Mondelez board last month.

PepsiCo, like rival Coca-Cola Co, has been battling declining soda sales in developed markets, especially the United States, as health-conscious consumers switch to non-carbonated beverages such as juices and health drinks.

PepsiCo reiterated that it had no plans to split up.

“PepsiCo’s management and board of directors have spoken clearly on this issue and are fully aligned with our strategy outlined last week,” a PepsiCo spokesman said in an email.

“Our focus is on delivering results for our shareholders, not new, costly distractions that will harm shareholder interests,” he said.

IDeas BIG (Brand Identity Group), a Naperville and San Francisco branding agency, thanks Reuters US writers for their article “Nelson Peltz revives campaign to split up PepsiCo.” If you would like more branding news, follow us on Twitter, or contact us.

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