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January 22, 2014

US: Peltz ends call for Mondelez merger, eyes PepsiCo split

Nelson Peltz has given up on his bid to try to get PepsiCo to merge with Mondelez International - but will focus on lobbying for the US snacks and cola giant to split in two.

By Dean Best

Nelson Peltz has given up on his bid to try to get PepsiCo to merge with Mondelez International – but will focus on lobbying for the US snacks and cola giant to split in two.

Mondelez yesterday (21 January) announced the activist investor had been lined up for a seat on its board of directors.

Peltz built stakes in Mondelez and PepsiCo last year and publicly called on the businesses to merge to maximise value for shareholders.

However, Trian Fund Management, Peltz’s investment vehicle, said the US billionaire was no longer pushing for “Plan A” – a merger – but would focus instead on “Plan B”, for PepsiCo to split in two.

“Given that PepsiCo is not interested in pursuing Plan A, we are encouraging them to pursue Plan B,” a spokesperson for Trian told just-food.

Trian said last year PepsiCo should divide its faster-growing snacks business from its slower-growth beverage arm so the two can perform more effectively and provide more value to shareholders.

It argued a stand-alone snacks company would be “positioned to deliver attractive growth and productivity initiatives that hit the bottom-line”.

The beverage business, Peltz has argued, would “create a beverages leader that can combine an efficient capital structure, high dividend and operational improvements to unlock value”.

So far, PepsiCo has resisted Peltz’s calls for a combination with Mondelez and for it to split in two.

In an interview this month with CNBC, PepsiCo chairman and CEO Indra Nooyi said: “These two categories are better together, not just in the United States, but around the world.”

Last year, Peltz also claimed Mondelez needed to work harder to improve margins.

Of his appointment to the Mondelez board, Peltz said: “Irene Rosenfeld is a CEO who has created substantial value for shareholders over the course of her career. I look forward to working closely and constructively with Irene, the board and management team toward our shared goals of driving growth, improving margins and increasing value for all shareholders.”

Peltz voiced concerns last summer over Mondelez’s margins. In July, Trian identified an opportunity to improve margins by 400 basis points – consistent with management’s long-term 14-16% margin target. However, Peltz was apparently working to a different timetable, telling a conference that month that he was “not getting any younger”.

Mondelez is working through moves to boost margins, which will see it revamp its production network, do business with fewer suppliers and offer fewer SKUs.

Wall Street analysts were sanguine about Peltz’s appointment to the Mondelez board.

Barclays Capital analyst Andrew Lazar said some investors may have been expecting “a more substantial outcome” that could have put pressure on Mondelez’s management such as Trian gaining more seats on the board.

However, Lazar added: “All in, we like the agreement announced this morning as a solution to the stand-off between Trian and Mondelez, as it allows shareholders and management to now focus squarely on improving base business trends.”

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