By Martinne Geller
NEW YORK, July 17 Activist shareholder Nelson
Peltz dialed up pressure on PepsiCo Inc, saying it
should buy Mondelez International Inc for more than $62
billion and spin off its soft drink business.
Peltz, a force behind some of the global food industry's
biggest deals, finally laid out his vision for what would be a
snack food powerhouse on Wednesday, three months after reporting
ownership stakes in each company that sparked rampant Wall
PepsiCo is at a "strategic crossroads," Trian said, adding
that the status quo was "unsustainable."
The revelation came after the expiration of a timeframe
during which Peltz and PepsiCo Chief Executive Indra Nooyi had
agreed to privately weigh the options his Trian Fund Management
had suggested, sources familiar with the matter told Reuters.
Trian posted a 59-page analysis on its website explaining
why PepsiCo should buy Mondelez in an all-stock deal at $35 per
share, a 16 percent premium to its earlier price, and then give
shareholders a dividend worth 20 percent of the combined market
capitalization. Including debt, the deal's enterprise value
would approach $78 billion. (Analysis:)
Peltz also appeared at a conference on Wednesday that was
broadcast on CNBC television where he said the deal could get
done in a range of $35 to $38 per share.
Trian also wants PepsiCo to concurrently spin off its
beverage business. It laid out various scenarios for that,
including spinning off the global business, the Americas
business and the North American business.
PepsiCo has said repeatedly that it sees no need for
"This idea is a non-starter," said a person familiar with
PepsiCo's thinking, adding that the deal would be good for
Mondelez shareholders, but for PepsiCo shareholders it would be
an "extremely risky" purchase of a company that has "been
underperforming, with huge exposure to slow-growth Western
As for spinning off the global beverage business, the
source, who declined to be named because the talks between Peltz
and PepsiCo are private, said it "just isn't going to happen."
PepsiCo has already said publicly that it was weighing
structural options for its North American beverage business but
does not plan to discuss it until early next year. On Wednesday
a PepsiCo spokesman said the company was confident in its
ability to deliver long-term shareholder value as an integrated
food and beverage company.
Peltz also said he is meeting with Mondelez Chief Executive
Irene Rosenfeld in the next couple weeks.
Mondelez "regularly engages in meaningful conversations with
its shareholders and looks forward to meeting with Trian to
learn about their perspectives in more detail," according to a
Peltz, a billionaire from Brooklyn who has done deals for
decades, said a company cannot be compelled to do a
transformational merger. This deal's benefits would include
cost-savings and increased sales opportunities from selling
PepsiCo's Frito-Lay snacks through the same international
distribution network Mondelez uses to sell its Cadbury
chocolates and Oreo cookies.
If PepsiCo will not buy Mondelez, it must separate its
higher-growth snacks business from its slower-growing,
cash-generating drinks business, Trian said.
As for Mondelez, Peltz praised Rosenfeld for her strategic
vision, but said the company "has some work to do" in the way of
fattening its profit margins.
"The crown jewel, obviously is Frito-Lay as well as the
international business," said Kevin Dreyer, a portfolio manager
of the Gabelli Asset Fund. He said the merger would boost
profits quickly while the spin-off would "unshackle" those
growth businesses from the weaker North American drinks unit.
Such a divorce would be reminiscent of the breakup of
Cadbury Schweppes into Dr Pepper Snapple Group and
Cadbury, which Peltz had a role in. He was also involved in the
subsequent purchase of Cadbury by Kraft and that company's
breakup into Kraft Foods Group Inc and Mondelez.
Gabelli's parent company, Gamco Investors, owns 6.3 million
shares of Mondelez and 1.6 million shares of PepsiCo.
"We hope they pay attention to Mr. Peltz's comments because
we think there are a lot of ways shareholders can win," Dreyer
PepsiCo shares closed up 1.5 percent at $85.24 on the New
York Stock Exchange, while Mondelez shares rose 2.1 percent to
$30.50 on the Nasdaq.