Peltz Demands Changes at Pepsi - Analyst Blog

On Mar 13, activist investor, Nelson Peltz, again hit back at PepsiCo, Inc.'s PEP rejection of his proposal to split the latter's beverage and snacks businesses. Peltz's investment company, Trian Fund Management, holds major stake in Pepsi.

Trian Fund has reportedly sent a letter to Pepsi's board demanding operational changes and details of its expenses. The investment firm asked Pepsi for an analytical defense of its 'Power of One' strategy and rejection of its proposal. Moreover, per media reports, Trian Fund has urged Pepsi's board to meet shareholders without chief executive officer CEO, Indra Nooyi and her team.

Peltz has been pressuring Pepsi for months to separate its underperforming beverage business from the stronger snacks business. However, Pepsi's board has repeatedly rejected Peltz's proposal arguing that the two businesses were better together.

In mid-February, Peltz, reportedly sent a 37-page letter to Pepsi's board, urging that the two businesses be separated to enable the company to focus on snacks, thereby accelerating its sales and profits. He argued that a split would “create two leaner and more entrepreneurial companies”. Peltz also warned about taking the case directly to shareholders. In response to the letter, Ian Cook, presiding director of Pepsi's board, said that splitting the two businesses would erode instead or creating shareholder value.

Cook's letter supported the stance taken by CEO Nooyi at the fourth-quarter conference call in mid-February. During the call, Nooyi announced that retaining the American beverage business would be in the best interests of the company.

Shifting consumer preferences toward health and wellness and “good-for-you” products is lowering the demand for high-calorie soft drinks, especially in North America. Thus, beverage giants like Pepsi and The Coca-Cola Company KO are witnessing declining sales of carbonated beverages, especially the colas. Peltz feels Pepsi's underperforming beverage business is overshadowing its fast growing snack unit.

In addition, Peltz had earlier pushed Pepsi to buy global snacks company, Mondelez International, Inc. MDLZ. However, he put off this agenda after joining the former's board in January this year. Trian Fund Management also holds major stake in Mondelez.

Previously known as Kraft Foods, Inc., Mondelez was renamed following the spin-off of its North American grocery business into a separate independent company, Kraft Foods Group, Inc. KRFT in Oct 2012.

Currently, PepsiCo carries a Zacks Rank #3 (Hold).