Shareholder again urges PepsiCo to split up

by Jeff Gelski
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NEW YORK – Trian Fund Management L.P., owner of about $1.2 billion of PepsiCo, Inc. common shares, on Feb. 19 said PepsiCo should separate its global snacks and beverage segments into two independent public companies. The recommendation came after PepsiCo on Feb. 13 turned down an earlier proposal from Trian to split up by saying it would remain one company.

“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 Fund Management said. “Trian hopes to facilitate positive change at PepsiCo with the power of the argument.”

PepsiCo issued a statement on Feb. 19.

“PepsiCo’s management and board of directors have spoken clearly on this issue and are fully aligned with our strategy outlined last week,” a PepsiCo spokesperson said. “We engaged constructively with Trian and invested a large amount of management time and significant financial resources analyzing 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.”

PepsiCo mentioned proposals that came in a Trian Fund Management white paper issued last July. It also recommended splitting PepsiCo into a beverage company and a snacks company.

PepsiCo addressed those concerns Feb. 13 when giving its fiscal year results. PepsiCo said after a review, which included assistance from bankers and consultants, management and its board of directors concluded shareholder value could be maximized by keeping North American Beverages within the PepsiCo portfolio.

PepsiCo said a spin-off would result in a loss of synergies between snacks and beverages in North America and between North American beverages and international beverage operations. A separation also would decrease the company’s relevance to U.S. retailers and jeopardize growth in food service, according to PepsiCo.

Trian Fund Management disagreed by issuing a letter and a white paper on Feb. 19. Trian said PepsiCo has underperformed since 2006 and standalone snacks and beverage companies would unlock value.

“A separation would create two leaner and more entrepreneurial companies,” Trian said. “A standalone snacks business would offer investors strong growth in sales, margins and free cash flow generation, and a standalone beverage business would provide strong, stable free cash flow that may be optimized through an effective balance sheet and capital return program.

“Separating snacks and beverages would eliminate PepsiCo’s current holding company structure, remove layers of unproductive overhead, drive cost savings to reinvest in the brands, and foster operating cultural benefits.”

To show its confidence in a standalone beverage business, Trian said it would be willing to buy additional shares and, if asked, join the board of a newly formed beverage company.

Executives of Trian, including founding partner and chief executive officer Nelson Peltz, signed a letter sent to Ian M. Cook, president director of PepsiCo, on Feb. 19. The letter said PepsiCo has failed to keep up with the Coca-Cola Co., Atlanta, in beverage innovations. The letter specifically pointed to the Coke Freestyle machine that allows people to customize their beverages with 100-plus flavor options. PepsiCo has yet to launch its version of a Freestyle machine.

“This is another example of PepsiCo’s ‘connected autonomy’ slowing down innovation and negatively impacting the ability to compete,” the letter said.
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