Peltz unrelenting in quest to get PepsiCo to split in two

Peltz unrelenting in quest to get PepsiCo to split in two

Nelson Peltz has called on PepsiCo to deliver "not just platitudes and rhetoric", in an open letter demanding the food and drinks giant outline in detail why it refuses to split its beverage and snacks units.

The letter, sent by the activist investor's Trian Fund Management yesterday (13 March) to PepsiCo's board, asks the Lay's chips maker to release a raft of financial data, including proof it is not losing share of the beverage market to rival Coca-Cola Co. Trian said the information is vital to back up PepsiCo's claims that the fund's case for a beverage and snacks separation is based on selective and misused data.

PepsiCo made those claims in a letter to Peltz, sent by PepsiCo director Ian Cook last month, that dismissed Trian's renewed calls for a split.

Trian wrote yesterday: "The dismissive tone of his [Cook's] letter suggests that you do not appreciate the degree to which PepsiCo's shareholders, the owners of the company, are frustrated. Given the company's prolonged under-performance, we believe the board and management are obligated to provide shareholders substance and analytics - not just platitudes and rhetoric - to defend the alleged benefits of the 'Power of One'."

In 2011, PepsiCo devised a strategy called Power of One that to try to capitalise in what it saw as the company's scale in food and drinks.

Peltz first called 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, but dropped the call in January when Mondelez offered him a board seat.

In response to Peltz's latest statement, PepsiCo said: "The board has thoroughly reviewed Trian's proposals and has concluded that they would not maximise shareholder value. The board of directors is confident in the thoroughness of management's analysis and leadership, and in the conclusion that sustained value creation for PepsiCo's shareholders is best optimised as an integrated food and beverage company."

Stifel Nicolaus analyst Mark Swartzberg said today Peltz is right to push PepsiCo for answers, and has the backing of shareholders.

"We continue to favour splitting PepsiCo into separate food and beverage companies," said Swartzberg. "A large percentage of PepsiCo shareholders also favour such a move, as shown in a recent competitor survey."

Analysts at Sanford Bernstein last month published a survey of 100 PepsiCo investors. Some 55% of the shareholders surveyed said the company should split.

In the letter, Trian accused PepsiCo of "financial engineering" after last month's full-year results, because it increased share repurchase and dividend programmes despite weak performance. Trian also said suggestions that a stand-alone PepsiCo beverages entity would be overwhelmed by Coca-Cola were "a red herring".