Activist investor Nelson Peltz put the spotlight back on PepsiCo, releasing on Thursday a letter that once again put pressure on the company to consider splitting its global snacks and beverage division into two independent public companies.
According to the Associated Press, Peltz has been urging PepsiCo to spin off the beverage business and focus on its billion-dollar snack brands, which include Lays, Cheetos and Doritos. The recommendation comes a week after PepsiCo turned down an earlier proposal from Trian Fund Management L.P., owner of about $1.2 billion of PepsiCo, to split the business.
"A separation would create two leaner and more entrepreneurial companies," Trian Fund Management 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."
Trian's letter stated its views on "structural changes" being the best way to move forward and "increase [its] shareholder value," adding that PepsiCo's beverage unit can show more potential under "focused leadership."
"Freed of allocated corporate costs and bureaucracy, and able to be nimble and lean, we believe a standalone beverage business will not only compete, but thrive," the letter states.
PepsiCo's drinks, which include Mountain Dew, Tropicana and Aquafina, have reportedly lost to their rivals at Coca-Cola Co. The company has been fighting a decrease in soda sales, especially the United States. Health concerns have topped the list, with consumers worried about calories and the use of artificial sweeteners.
The letter specifically pointed to the Coca-Cola Co. freestyle machine that allows people to customize their beverages with 100-plus flavor options and how PepsiCo has yet to prepare its version of the machine.
"This is another example of PepsiCo's 'connected autonomy' slowing down innovation and negatively impacting the ability to compete," the letter said.
Trian has pushed for changes at PepsiCo since November. The AP reported that Trian plans to meet with shareholders "immediately," in hopes of gaining the support needed to prompt PepsiCo to take action.
"Decoupling our beverage and snack businesses in North America would significantly reduce our relevance to our customers," PepsiCo's Chief Executive Indra Nooyi said.
To show its confidence in a standalone beverage business, Trian said it would be willing to buy additional shares and join the board of a newly formed beverage company.
PepsiCo issued a statement on Wednesday.
"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."
