Trian's Peltz Urges PepsiCo to Buy Mondelez

As a rule, when activist shareholders and large corporations lock horns, sparks fly. Such was the case with Trian Fund Management LP’s Nelson Peltz and PepsiCo Inc. PEP.

Peltz, who has been involved in several large food industry deals, said Wednesday, according to Bloomberg, that the world’s second largest soft-drink producer should acquire Mondelez International Inc. MDLZ for $35 to $38 a share at a cost of as much as $67.8 billion.

Pepsi isn’t interested and has said so repeatedly according to a source who spoke with Bloomberg.

In response, Trian published a 59-page analysis on its website, urging Pepsi to buy Mondelez and further suggesting that if Pepsi doesn’t do so, it should at least separate its slow-performing beverages unit from its high-growth snacks division, which includes the profitable Frito Lay line of products.

Quoting from the Trian analysis: “If PepsiCo does not pursue a Mondelez transaction, we believe it must separate snacks/beverages. We believe a separation will create a focused snacks leader positioned to deliver attractive growth and productivity initiatives that hit the bottom-line. We believe it will also create a beverages leader that can combine an efficient capital structure, high dividend, and operational improvements to unlock value.”

Mondelez is the Deerfield, Illinois-based maker of crackers and sweet snacks, created when Kraft divested itself of the company and became Kraft Foods Group Inc. KRFT.

From Peltz and Trian’s perspective, PepsiCo needs to change. At the CNBC Institutional Investor Delivering Alpha Conference Wednesday in New York, he said, “Pepsi is at a crossroads at this time.” He described the company as having a cash business in beverages and a growth business in snacks, a condition he believes is not sustainable.

PepsiCo, according to Bloomberg, which spoke with “a person with knowledge of the matter,” believes that Mondelez represents a risky buy. The source cited company underperformance and reliance on slow-growth Western European markets.

The same source also said PepsiCo is not likely to split beverages and snacks into two businesses.

Officially, in an email, the company said, “We have a strong growth strategy and structure in place, and our results to date and returns to our shareholders prove that we are a high performing company and our strategy is working.”

Related: Pepsi Responds to Peltz, Says Company Has Strong Plan For Growth

At the end of the trading day Wednesday, PepsiCo shares closed up 1.5 percent at $85.24 and Mondelez closed up 2.1 percent at $30.50.

At the time of this writing, Jim Probasco had no position in any mentioned securities.