PepsiCo: Does Trian have a case for a spinoff?

  • ID: 3068913
  • Report
  • 495 pages
  • MarketLine
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Introduction

This case study explores why activist Investor Nelson Peltz is advocating that PepsiCo should separate its drinks and snacks divisions. It assesses the case for and against division, and considers whether such an event will ever come to realization.

Features and benefits

- Explores PepsiCo's current economic status and the markets it operates in, and how Trian Investments is trying to effect a change.
- Analysis of Trian's white paper for PepsiCo spinoff strategy, and how successful recent spinoffs have been.
- Evaluates PepsiCo's current strategy, and whether it will be sufficient to quell Trian's calls for spinning off the company.

Highlights

PepsiCo is one of the largest snack and drinks manufacturers globally. Recent performance has seen mixed fortunes for the company. Nelson Peltz is an activist investor with a track history of improving flagging giants. Peltz has advocated radical change to PepsiCo’s structure by separating the two divisions.
Peltz's company Trian believes that there is value to be had in separating the PepsiCo business. Trian also points to the example of Cadbury in 2008, where the spinoff of Dr. Pepper has seen the company grow and even perform better than PepsiCo.
PepsiCo has categorically rebuked the consistent attempts by Peltz and Trian to spin off the company. It remains in favor of its current strategy, titled the "Power of One". It offers both of its product types as a combined offering, while striving to make cost savings and further gains elsewhere.

Your key questions answered

- How has PepsiCo fared recently, and what is the current state of the North American carbonated beverages market?
- Who is Nelson Peltz, what is Trian Investments, and why do they want to spin off PepsiCo?
- Is PepsiCo's Power of One strategy working?
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OVERVIEW
Catalyst
Summary
PEPSICO AND NELSON PELTZ
PepsiCo’s recent performance
Nelson Peltz runs Trian Partners
The North American carbonates market is shrinking
PepsiCo’s mixed fortunes

PepsiCo’s performance against Coca-Cola

PepsiCo’s performance on the stock exchange

Snacks division performs strongly while beverages flounder
Trian advocates spinning off to reinvigorate the company
PepsiCo remains committed to union
Disagreement has prompted a proxy war for control
IS SPINNING OFF PEPSICO THE WAY TO GO?
Trian advocates spinoffs to generate more value
Dr Pepper Snapple: a better investment than the big two?
Benefits for PepsiCo

Divisional split will hone focus

Removing holding company structure will reduce costs

Removing holding company improves accountability
New direction for beverages

Pepsi Max: a metaphor for PepsiCo’s decline?

Opportunity for PepsiCo to innovate
PEPSICO: THE POWER OF ONE?
PepsiCo’s current strategy

PepsiCo is marketing combined pitches to drive cross-divisional sales
The productivity plan seeks to improve financial position
A PepsiCo spinoff could jeopardize lucrative deals

PepsiCo and the NFL

Larger size insulates against changing retail channels
PepsiCo is innovating, despite Peltz’s claims

Product Innovation in the beverage business
PepsiCo is investing in nutrition

Coca-Cola is also launching a Stevia product
Recent financial performance has undermined Peltz’s case

Compensating for declining carbonated soft drinks: smaller packaging

Developing market growth contributes to better results
CONCLUSIONS
Trian in a win-win scenario
APPENDIX
Definitions
Sources
Further Reading
Ask the analyst
About
Disclaimer
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