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Nooyi-Pepsico

PepsiCo split? CEO Indra Nooyi says no way

 

The announcement ends activist investor Nelson Peltz’s attempts to force a division. Since last spring, Peltz has been canvassing fellow investors to back a PepsiCo merger with snacks rival Modelez International. That move was put on ice last month, when Peltz announced he was to take a seat on Mondelez’s board and halt his agitation for a merger.

However, his attempts to split PepsiCo’s NAB and snacks units, which he claims will create additional value for both units, continued – until now.

“We spent a whole year looking at this, and there isn’t a stone that we didn’t turn over,” CEO Indra Nooyi said. “At the end of the day, we concluded that long-term value is maximised with NAB (North American Beverages) staying in PepsiCo’s portfolio.”

The markets reacted unfavourably to the news, despite Nooyi’s insistence that NAB is “too big a business, and too profitable a business” to let go. Share gains made over the past two weeks were wiped out yesterday, as the stock dipped 2%.

Analysts, however, are in favour of the move. Janney’s Jonathan Feeney believes it “makes sense”, considering the sweetener innovations PepsiCo has lined up for launch this year.

“Looking at the synergies between the businesses and valuation of comparable assets, we’re inclined to agree (with Nooyi),” says Feeney.

North American drink sales volume dropped 3 per cent in 2013 after falling 1 per cent in 2012, as US consumers turned away from both high-calorie sodas and artificially sweetened diet drinks.

Soda makers are trying to adapt to changing consumer preferences by marketing “mid-calorie” sodas that have less sugar than regular drinks but eliminate the artificial sweeteners typically used in diet drinks. Pepsi said it plans to test drinks sweetened with a mix of sugar and stevia, a natural calorie-free sweetener, in the US this year. Rivals Coca-Cola and Dr Pepper Snapple have similar plans.

Nooyi also suggested a foray into so-called “at-home” drinks – such as SodaStream or Green Mountain’s Keurig system – could be in Pepsi’s future. It has been testing single-serve home delivery products but, she said, it would be “premature” to commit to a technology at this stage.

But, while PepsiCo looks set to stay together – for now, at least – the company has poured cold water on any potential courting of Monster Beverage Corp. Speculation had mounted that PepsiCo would use the fast-growing energy drinks maker to plug gaps in its portfolio. However, management said its distribution deal with Rockstar, and the early successes of Mountain Dew Kickstart, meant it was not looking for any acquisitions in the energy category.

Source: Reuters, FT.com