no more mr. nice guy

Nelson Peltz takes off the kid gloves with Pepsi

July 17, 2013
July 17, 2013

Activist investor Nelson Peltz finally went public today with his views on Pepsi. At the CNBC Delivering Alpha conference, Peltz laid out his vision for Pepsi, which includes acquiring snacks company Mondelez International for somewhere in the range of $35 a share to $38 a share. Peltz’s public declaration is meant to put pressure on Pepsi, which has said that big acquisitions are not a part of its strategy.

The soft drinks business of Pepsi is seen as a drag on the entire company, since consumer tastes have shifted toward healthier beverages. The Frito-Lay division of Pepsi, which is its snacks business, is doing well and accounts for two-thirds of Pepsi’s overall value. But because beverage analysts tend to be the ones who cover Pepsi, they typically don’t appreciate the value of the company’s snacks business, according to Peltz.

That’s why he thinks the beverage business should be spun off and Pepsi should buy Mondelez, which broke off of Kraft Foods in 2011. Peltz also pushed for that move at Kraft, which separated its slower growing North American groceries business from its expanding snacks unit.

But with Kraft, Peltz put pressure on management behind the scenes, which is often the way he prefers to work. The fact that he has gone public with his views on Pepsi shows he is done playing Mr. Nice Guy. Pepsi CEO Indra Nooyi is running out of time to hold off Peltz, who urged other Pepsi shareholders to make their views known.

Nooyi said earlier this year that Pepsi was exploring ways to unlock shareholder value, which could mean a breakup. Peltz said if Pepsi wasn’t going to buy Mondelez, a separation of the two businesses was Plan B. And he noted that Pepsi could then buy Mondelez down the road.

As for Mondelez, he said he would be meeting with its CEO, Irene Rosenfeld, the former Kraft Foods CEO pressured by Peltz about a breakup (paywall). At the conference, he said Rosenfeld has been a good strategic leader but has operational problems; Mondelez’s margins should be much higher.

Peltz has had a successful run with Kraft in its various forms. In 2008, Cadbury Schweppes spun off Dr Pepper, with urging from Peltz, who then advocated a Cadbury sale to Kraft, which occurred in 2010. Peltz clearly knows how to win an argument.

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