Speculation has been mounting in the past few months about the plans of Nelson Peltz, founder of Trian Partners after he amassed a $1.5bn stake in Pepsico and a $1.3bn stake in Mondelez.
He spoke of his intentions for the first time in an interview with CNBC on Wednesday.
$62bn deal on the cards?
“Plan A is that Pepsi acquires Mondelez.”
He said this would be for around $35-$38 per share– which would mean the acquisition would be around $62bn.
“And then they spin off the entire beverage business.”
Peltz envisages that if PepsiCo did acquire Mondelez its price per share by 2015 would rise from $80 per share today to $175, while Mondelez’s stock would grow from $30 per share to $72.
PepsiCo not keen so far
The ‘activist investor’ said he had been long-term friends with PespiCo CEO Indra Nooyi and had been in discussions with PepsiCo management. He also has a meeting planned with Mondelez CEO Irene Rosenfeld this week.
“Pepsi right now doesn’t love the deal,” said Peltz.
“Alternative B is, if they continue insist this is not the right thing for them, then we urge them to do what Kraft did [separate beverages and snacks].”
This would mean splitting Frito-Lay, the company’s salty snacks business and PepsiCo Americas Beverages.
Trian has issued a white paper outlining its vision for the split.
PepsiCo drinks business ‘underperforming’
“Pepsi, the carbonated soft drink business, is just not growing.”
He said that people weren’t consuming soft drinks as much as they once were and the business structure was not working.
Carbonated beverage sales have been declining slightly in most developed markets for the past few years.
“Pepsi has underperformed in the last six or seven years against its peers.”
Two-thirds of PepsiCo’s value now comes from salty snacks business Frito-Lay.
Peltz said a Mondelez/PepsiCo merger would be a good geographic fit as Frito-Lay was weaker in Europe, where Mondelez had a strong presence.
Mondelez’s portfolio includes chocolate brands Cadbury and Milka, biscuit brand Oreo, gum brand Trident and beverage brands Kenco and Tang.
Are snacks an obesity concern?
Quizzed on the potential adverse health effects of sweet and salty snacks, Peltz said: “Dark chocolate is now great for you, chewing gum cuts down your intake of more fattening foods, we think it could actually be a delivery vehicle for nutraceuticals.”
He said that salty snacks could be a potential problem, but companies in this area were learning to deal with sodium reduction better than beverage companies’ efforts to cut sugar.