US: Trian pushes for PepsiCo split - again
Trian turns up the heat on PepsiCo
Trian Partners, the investment vehicle of US billionaire Nelson Peltz, has renewed its call for PepsiCo to separate its snacks and drinks businesses.
The investment fund, which holds shares in PepsiCo worth around US$1.2bn, sent a 31-page "white paper" to the company's board urging for the business to be divided yesterday (19 February).
Peltz first argued for a split of PepsiCo into a fast-growth snacks business and a slow-growth beverages unit last year. He suggested the snacks arm should be merged with Mondelez International. He dropped the call for a merger with Mondelez in January when the Cadbury maker offered him a board seat. However, Trian has continued to push for PepsiCo to be broken up.
PepsiCo has repeatedly rebuffed Peltz's argument that each business would operate more effectively as a pure-play snacks or drinks company. Last week, management of the Frito Lay-to-Mountain Dew manufacturer announced the completion of a structural review that concluded structural adjustments were not the most appropriate way to drive shareholder value.
In a statement, Trian said it was "highly disappointed" with PepsiCo's decision. "Trian believes the decision is one for shareholders, and it will immediately begin to engage fellow shareholders in a public dialogue with the goal of creating a groundswell of support for a separation of snacks and beverages. Trian hopes to facilitate positive change at PepsiCo with the power of the argument."
Trian believes stand-alone snacks and beverage companies would create two "leaner and more entrepreneurial companies". The snack business would offer investors strong sales, margin and free cash flow growth, while the drinks unit would provide stable free cash flow "that may be optimised through an effective balance sheet and capital return programme".
Slimming down the business would also reduce overheads and complexity, resulting in cost savings, Trian insisted.
According to Sanford Bernstein analyst Ali Dibadj, whether this plan would deliver significant shareholder value would hinge on the performance of the stand-alone companies after the split. "Though we see limited downside and some valuation upside from a potential split, we do believe a meaningful opportunity arises if the split companies were to operate better with more focused/accountable management," Dibadj said yesterday.
Responding to Trian's move to initiate a "public debate" PepsiCo issued a statement suggesting the fund's ongoing efforts were a "costly distraction" for management.
"PepsiCo's management and board of directors have spoken clearly on this issue and are fully aligned with our strategy outlined last week. We engaged constructively with Trian and invested a large amount of management time and significant financial resources analysing Trian's proposals. Management and the board have spoken clearly, and our focus is on delivering results for our shareholders, not new, costly distractions that will harm shareholder interests," the company said.
"We are confident in our ability to deliver long-term shareholder value as an integrated food and beverage company."
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