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Nelson Peltz Renews Attack On Pepsico Demanding Spin-off Of Beverage Business

pepsico,

Nelson Peltz, who is 71, is a seasoned campaigner in the activist investor game and is the founding partner and CEO of Trian Fund Management LP, which is a major new York based hedge fund.

Today he hit the news again by renewing his campaign against Pepsico, the number two beverage maker to Coca cola, demanding to spin off its under-performing beverage division entirely to concentrate on its equally large, but more profitable, snack food division.

Peltz’s funds own US$1.2 billion of the company’s shares, or only about 0.8% of the company’s market capitalization, but that is not stopping him from throwing his weight around, it seems.

When he first made these demands last summer he also agitated to merge Pepsico’s snack food business with that of Mondelez, a task made easier after Mondelez had earlier spun off its food division to leave itself as a stand alone independent snack food company, now with Nelson Peltz even sitting on its Board of Directors.

pepsico logo

Having studied the case for a spin off, Pepsico announced the results of its strategic review last week, when it issued its financial results for the year, saying the company had decided against the whole idea and that Pepsi and snack foods should stay together each contributing around US$30 billion in annual revenues.

A spokesman for Pepsico also said then “PepsiCo’s management and Board of Directors have spoken clearly on this issue and are fully aligned with our strategy outlined last week. Our focus is on delivering results for our shareholders, not new, costly distractions that will harm shareholder interests.”

This Peltz is now rejecting in a new letter he sent yesterday, and released publicly today, to the company’s Board of Directors. He even addressed it to its “Presiding Director” Ian Cook, going completely over the head of the company’s Chairman and CEO Indra Nooyi, which is decidedly undiplomatic.

Trian does not agree with the outcome of PepsiCo’s strategic review, particularly following another quarter of uninspiring performance and weak 2014 guidance, ” Peltz states in the letter.

In addition to the letter Peltz provides an updated 31 page white paper outlining its case in great detail to the board. The paper is an update of an earlier version it had issued last November.

However the crux of his argument, is right up front in his letter when he says, “it is clear we have vastly different views on the best path forward for PepsiCo. 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.”

Now the battle lines are drawn we will in due course see who blinks first. Much will depend on the relative support each side has from the “silent majority” of institutional shareholders who tend to fall in with one side or the other, depending on who makes the best case.

About Nelson Peltz

Nelson Peltz was born and raised in Brooklyn, New York, going on to study at the Wharton School of the University of Pennsylvania. In 1963 he dropped out of school at the age of 21 to join his family’s wholesale food distribution business in New York. After building it up, from a $2.5 million business into a publicly held company with $150 million in sales, he sold it fifteen years later.

He then formed Triangle Industries, with a partner Peter May, growing that business into a Fortune 100 industrial company during the seventies and eighties, before selling out to Pechiney in 1988. Peltz and May, now long term business partners, subsequently formed Triarc Company, and acquired the Snapple brand of drinks from Quaker Oats, which they later sold on to Cadbury Schweppes in 2000.

In 2005 Nelson Peltz, May and a third partner Ed Garden, founded Trian Fund Management, which has since made large-scale investments in a number of companies including Wendy’s, Heinz, Cadbury, Kraft Foods, Family Dollar and Domino’s Pizza. Nelson Peltz currently serves as non-executive Chairman of The Wendy’s Company, the second-largest quick service restaurant company in the United States, and sits on the board of a number of prominent American companies.

He has homes in both 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 US$1.1 billion, Nelson Peltz is well-known for supporting philanthropic causes, and especially many Jewish and Israeli charities.

 

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