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Peltz Renews PepsiCo Breakup Proposal in Rebuke of CEO Nooyi

By Duane D. Stanford
February 20, 2014 4:35 PM EST 2 Comments
Nelson Peltz, founder of Trian Fund Management LP.
Photographer: Heidi Gutman/CNBC/NBCU Photo Bank via Getty Images
Nelson Peltz, founder of Trian Fund Management LP.

Activist investor Nelson Peltz, who has sought a split of PepsiCo Inc. (PEP)’s beverage and snack units, was “highly disappointed” with its decision not to heed his proposal and will take the case directly to investors, he said yesterday in a 37-page letter to the company.

Peltz, founder of Trian Fund Management LP, said he will also consider holding public shareholder forums while remaining open to discussions with management. PepsiCo Chief Executive Officer Indra Nooyi said on Feb. 13 that keeping the units together was in the best interests of shareholders and that the company was confident it could meet its long-term profit goals.

“It is clear we have vastly different views on the best path forward for PepsiCo,” wrote 71-year-old Peltz. “It appears that PepsiCo views structural change as a sign of weakness, an admission of failure and an untenable break with past traditions. Trian views structural change as the best path forward to generate sustainable increases in shareholder value.”

PepsiCo rose 1.2 percent to $78.01 at the close in New York. Shares of the Purchase, New York-based company have fallen 5.9 percent this year, while the Standard & Poor’s 500 Index slipped 0.5 percent.

Nooyi’s decision last week followed months of pressure from Peltz, who has been critical of the company’s drinks performance in the U.S. Peltz, whose Trian Fund owns less than 1 percent of PepsiCo, had also pushed for a merger with Mondelez International Inc. (MDLZ)

‘Fully Aligned’

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

In his letter, Peltz cited deteriorating North American beverage trends, questionable quality of earnings in 2013 and a disappointing 2014 profit forecast as evidence that the company needs to act. PepsiCo’s rationale for maintaining its current structure is subjective and lacks strong evidence, he also wrote.

The letter, first reported by the Wall Street Journal, didn’t sway PepsiCo, the world’s largest snack maker.

‘Costly Distractions’

“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,” Wilkinson also said.

Nooyi, 58, said last week she will extend a cost-cutting plan, reducing $5 billion in expenses over five years starting in 2015.

PepsiCo at the time reported fourth-quarter net income that rose 4.9 percent to $1.74 billion, or $1.12 a share, from $1.06, a year earlier. Adjusted earnings per share totaled $1.05, the company said. That beat the $1 average of 15 analysts’ estimates compiled by Bloomberg.

Revenue rose 0.8 percent to $20.1 billion, matching estimates. Snacks volume increased 3 percent in the quarter, while beverages advanced 1 percent.

To contact the reporter on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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