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Nelson Peltz urges PepsiCo to pick up Mondelez from Kraft

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Nelson Peltz / Getty

/ By Albert Hecht /

Nelson Peltz, known as being among the most aggressive activist investors, especially in the fast food business, has long said his sights on the underachieving soft drinks maker PepsiCo. Now he has come out in the open with his plans for the group, in which he is a major shareholder, urging them to merge their snack production business with that of the Kraft food group, Mondelez in what would amount to a $60 billion merger.

Nelson Peltz, the activist investor behind Trian Partners has ended months of speculation behind the reason why he has been steadily acquiring shares in PepsiCo, with the proposed merger, according to Peltz, apparently clearing the way for Pepsi to release shares in its “ less than fizzy” soda business to the company shareholders.

However indications that that Peltz’s plan for PepsiCo, are far from being in line with that of the company management , setting the stage for what could turn out to be an interesting and long-running battle with Indra Nooyi, PepsiCo’s chief executive. Nooyi, who has been made aware of Peltz’s intentions, being quoted in public earlier this year stating  that the company was far from being in need of  any “transformational” deals.

Market analysts are stating that should the deal go through, it would be very worthwhile for Mondelez shareholders, with Peltz being a prominent one, while for shareholders and PepsiCo shareholders it would represent a considerable risk . The upshot being the multibillion-dollar acquisition of a company whose sales and profitability in the last few years has been disappointing due to their dependence in markets in Western Europe which have been in a depressed state for a number of years.

Poised for the move Peltz has taken billion-dollar holdings in both companies, and has recently come out in public with his suggestion that entails  PepsiCo acquiring  Mondelez from Kraft, paying between $35 to $38 a share, making for a merger deal that would value the company at more than $60 billion.

The Mondelez brand is a spin-off division of Cadbury. the UK based producer of chocolate, candies and biscuits acquired in 2010 by Kraft after a long drawn out and hostile takeover.

In 2013 Philadelphia-based Kraft split their grocery-focused Kraft Foods away from Mondelez, who noted manufacture and market the Cadbury brand.

According to Peltz, if there was anything in the way of an agreement, PepsiCo would be eminently capable of a cash dividend to all shareholders equivalent to one-fifth of the combined group’s market capitalization.

Once that was agreed to  the final step in Peltz’s “ sweet” deal would be to “spin off” the beverage business on the stock market or to private investors,  leaving PepsiCo’s Frito-Lay food brands to merge comfortably with Mondelez’s sweet snacks and coffee businesses.

PepsiCo has made no secret of the fact that they are considering for restructuring its North American beverage business, suffering in recent years from a drop in demand for the soft drink products. However it is understood that the company will not be ready to, announce their reconstruction plans until the early part next year.

The management at PepsiCo are keeping their cards close to the chest , although there have been a few hints laid that the company has absolutely “no intention” of splitting their global snacks divisions from their global beverages. In the meantime Nelson Peltz continues to stress his belief that in any event PepsiCo’s beverages and snacks should be separated, and by merging with Mondelez, would re-emerge as a strong force in the markets.

Peltz, well-known for doing his research and for never giving up without a struggle, already pointed out that 37 of the top 40 shareholders of PepsiCo also holds considerable packages of Mondelez stock.

As the news of Peltz’s plans for Pepsi begin to break, the markets seem to like the idea of splitting snacks with shares in PepsiCo rising by 1.5 per cent to close at $85.24, very close to their all-time high, while shares in Mondelez gained 2.1 per cent to $30.50.

 

Nelson Peltz was born and raised in Brooklyn, New York, going on to study at the Wharton School of the University of Pennsylvania.

However Peltz never got to complete his degree, when in 1963 at the age of 21, he made the momentous decision to join his family’s wholesale food distribution business servicing the finest restaurants in New York. His decision to follow a career in the world of commerce was obviously the right one, because he succeeded in growing the family business , taking it from a $2.5 million turnover entity into a publicly held company with $150 million in sales at its peak fifteen years later, before selling out.

Peltz ‘s next business venture, which he did in conjunction with his long-term business partner, Peter May , was to form Triangle Industries, which they grew into a Fortune 100 industrial company during the seventies and eighties, eventually selling out to Pechiney in 1988.

Peltz and May then formed the Triarc Company, where among the largest coups was the acquisition of the Snapple brand of tea and juice drinks from Quaker Oats, which they later sold on to to Cadbury Schweppes in 2000.

In 2005, Peltz and May, this time with a third partner Ed Garden, founded Trian Fund Management, L.P. which has made large-scale investments in such companies as Wendy’s, Heinz, Cadbury, Kraft Foods, Family Dollar and Domino’s Pizza among a number of others .

Significantly in 2007, Trian acquired a 3% share of Cadbury-Schweppes, a factor which is reckoned to have influenced the spin-off of Cadbury Schweppes Americas Beverages division from the Cadbury Schweppes confectionery group . Also, and possibly even more significant, Trian also acquired a 3% stockholding in Kraft Foods, paying $1.8 billion for the shares

Peltz who has homes both in California and New York as well as one of the most expensive homes in the United States, Montsorrel, in Palm Beach, Florida.

With a current net worth estimated to be around $1.1 billion, Nelson Peltz has been well-known philanthropic deeds over the years especially supporting many Jewish and Israeli charities.

 

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