Just two weeks ago the management and board of beverage and snack food company Pepsico formally rejected the overtures of Nelson Peltz and his activist hedge fund Trian Management. Peltz wanted them to split up the company and sell off its beverage division, including of course Pepsi itself.
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Not only did they reject his proposals they did so both most emphatically and with exquisite politesse, leaving little room for further discussion, only either acquiescence or total conflict.
Well, yesterday Peltz seemed to have chosen the latter as he stepped up his campaign of attrition against the company and its board. In another open letter to the board he criticized its previous “dismissive tone” and demanded operational changes. He also demanded directors meet with shareholders, presumably including him, without CEO Indra Nooyi or her management team to field his litany of complaints.
Since Peltz’s Trian fund only owns 0.8% of a company with a market capitalization currently of over US$123 billion, his power to force change rests less on his stock ownership than his command of the “bully pulpit” in persuading blocks of other institutional shareholders to align themselves with his arguments.
Or bluster, as some might call them, with for example Peltz stating yesterday “Centralization of costs and power within corporate has eroded PepsiCo’s culture and impaired the competitiveness of its businesses.”
This time the Pepsico response came from a lowly executive vice President of Communications, Jim Wilkinson, rather than from presiding director Ian Cook, itself another gentle put down. “Major shareholders may consult with our presiding director at any time, ” and that director, along with another independent director, “have already met with Trian without management present.” Wilkinson said, adding that the board had already backed management’s decision that PepsiCo should remain an “integrated food and beverage company.
In some frustration Nelson Peltz’s investment partner Ed Garden was reduced to saying to Bloomberg “We don’t go public like this very often, ” adding: “In this case, there’s significant underperformance over a long period of time, coupled with a board and management team that, to date, has been dismissive with their shareholders.”
The trouble is the shares have down quite well, running up by 35% in the last year and a half. This is about in line with the S&P 500 and perhaps better than some hedge funds themselves in the same time frame.
Accordingly it is not entirely clear if Peltz has enough fire power to go any further; only time will tell here.
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.