Published On: Fri, Feb 28th, 2014

PepsiCo Completely Rejects Activist Investor Nelson Peltz’s Beverages Unit Spin-out Proposal

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Paul Singer wasn’t the only Wall Street activist investor to get a rejection slip yesterday. Beverage and snack food company PepsiCo just turned down Nelson Peltz flat as well.

Just over one week ago, Nelson Peltz had published an open letter to the PepsiCo Board of Directors demanding it spin off its beverage division, the one that make Pepsi and other drinks, in order to concentrate on its snack food business which, he claimed, has much higher growth potential.

In a letter to Peltz’s Trian Management Fund, filed with the SEC yesterday, PepsiCo has now replied to Peltz with an exceptionally polite but total rejection. Presiding Director Ian Cook signed the letter, which commences as follows:

“Your letter of February 19th, 2014 has been received and shared with the entire PepsiCo board and its management. I am writing to advise you that the board and management are comfortable and in complete alignment in rejecting your proposal.”

The letter also then goes on to assert, quite confidently, that much of Peltz’s earlier 37 page white paper, detailing the proposals that he had sent to PepsiCo was, in its opinion based on selective use of data, and some of it misused.

Finally PepsiCo concludes that the financial engineering Peltz proposes would erode rather than create value.

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Of course this is a shut-out response and a slamming of the door really quite hard. But, it is also not something to be considered in isolation. In dealing with activist investors any company must have a very good feel for how its own current shareholder constituency is really thinking.

The more a company has confidence that their shareholders are broadly on board with its current performance, and especially with its vision for the future, the more a company can play hard ball in response. That is why the shareholder communications function is such a key one, and not one to be neglected until there is a crisis.

It really does sound like here PepsiCo is almost daring Nelson Peltz to make a bid for the company himself if he really believes in his own spreadsheets. With a US$122 billion market capitalization, before any such bid premium, that might not be so easy, however.

So far, Trian Management is reported to own about a US$1.2 billion position in PepsiCo. Whilst Peltz has an impeccable record of success, as you can see below, in several consumer food related businesses that may not be enough this time, nor may his activism invite others to bid instead to save him the trouble. Of course, no one yet quite knows how it will all play out, or if there is more of the story still to come.

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 small 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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