Activist investor Nelson Peltz wants PepsiCo to acquire snack maker Mondelez

18 Jul 2013

US activist investor Nelson Peltz has urged PepsiCo to acquire snack maker Mondelez International and later spin off the soft drink business.

Peltz, whose Trian Fund Management holds stock in both companies worth around $2.7 billion, wants Frito-Lay and Quaker Oats brands and Cadbury, Oreo and Nabisco to come under one roof by merging PepsiCo with Mondelez, the snack food company spun off from Kraft last year.

According to the proposal to be put forward by Peltz to the management of the food and beverage giant, the deal would be an all-stock transaction worth $35 to $38 per share.

Peltz also wants the company to pay a dividend of 20 per cent of its market value and later spin off the beverage business into a new company.

PepsiCo has a market value of nearly $131 billion, while Mondelez has a market cap of $53 billion. A potential merger would create the world's largest snack company.

Mondelez global snacks business consists of many of the most popular food brands, including Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee, Tang powdered beverages and others.

PepsiCo's snack business includes the $13 billion Frito-Lay brands and the around $2 billion Quaker brands.

The Frito Lay division is the largest and generates 29 per cent of the company's annual revenues of $65 billion and 43 per cent of its operating income of $9.4 billion, while Quaker Oats generates only 4 per cent of the company revenues and contributes 8 per cent of its operating income.

Trian, which holds 12 million shares of PepsiCo and 40 million shares of Mondelez, would bring out a white paper on the merger and would present it to Pepsi's management in the very near future.

Trian believes PepsiCo to be at a strategic crossroads with changing consumer tastes and the increased importance of emerging markets that have changed the outlook for its key businesses.

According to Trian, PepsiCo's current structure is increasingly unmanageable. While it has a leading portfolio of $22 billion brands, PepsiCo has underperformed its peers as it grapples with the differing needs of its fast-growth snacks division and slow-growth beverage businesses.

Reacting to Peltz' proposal, a Pepsi spokesperson said in a statement, ''We have a strong growth strategy and structure in place, and our results to date and returns to our shareholders prove that we are a high-performing company and our strategy is working.''

''We are confident in our ability to deliver long-term shareholder value as an integrated food and beverage company,'' he added.