Trian: Delivers Again «White Paper» to PepsiCo Board

New York / NY. (tfm) Trian Fund Management L.P. (Trian Partners), whose investment funds beneficially own approximately 1,2 billion USD of PepsiCo Inc. common shares, again released a letter to PepsiCo´s Board of Directors (see bakenet:eu on 2013-07-22) and updated a 31-page white paper detailing why separating global snacks and beverages into two independent public companies would be the right long-term decision for the business and would create substantial value for shareholders.

Trian has had discussions for months with PepsiCo Board members and senior executives about PepsiCo´s historical under-performance and the logic of separating it into «pure play» beverages and snacks companies. Accordingly, Trian was highly disappointed by PepsiCo´s February 13th announcement that its strategic review is completed and it has decided not to make structural changes. Trian believes the decision is one for shareholders, and it will immediately begin to engage fellow shareholders in a public dialogue with the goal of creating a groundswell of support for a separation of snacks and beverages. Trian hopes to facilitate positive change at PepsiCo with the power of the argument.

To advance shareholder dialogue, Trian is making public its updated white paper supporting a separation of PepsiCo´s global snacks and beverages businesses. The letter and white paper analyze the challenges inherent in PepsiCo´s current structure and outline what Trian believes to be the best path forward for the Company to generate sustainable increases in long-term shareholder value:

  • Trian is concerned by PepsiCo´s continuing under-performance since 2006 which Trian believes is due primarily to PepsiCo´s misguided reliance on the «Power of One» strategy. Last week, PepsiCo reported low-quality EPS growth in 2013, deteriorating trends in its North American beverages business and weak 2014 guidance, reinforcing Trian´s view that now is the time for decisive structural action (see «PepsiCo Achieves 2013 Financial Targets» in b:eu on 2014-02-17).
  • Trian does not agree with the outcome of PepsiCo´s strategic review, particularly following another quarter of uninspiring performance and weak 2014 guidance. Trian believes PepsiCo´s conclusion that the «current structure maximizes value» is at odds with many years of sub-par operating results, and that its rationale for maintaining the current structure is highly subjective and lacks analytical support.
  • Trian believes separating snacks and beverages into two independent public companies will maximize value. Trian believes standalone snacks and beverage companies, positioned correctly in the market, would unlock value at PepsiCo. A separation would create two leaner and more entrepreneurial companies – a standalone snacks business would offer investors strong growth in sales, margins and free cash flow generation, and a standalone beverage business would provide strong, stable free cash flow that may be optimized through an effective balance sheet and capital return program. Separating snacks and beverages would eliminate PepsiCo´s current holding company structure, remove layers of unproductive overhead, drive cost savings to reinvest in the brands, and foster operating and cultural benefits.
  • Trian believes a standalone beverage business will generate strong, stable free cash flow today and higher cash flow in the future under focused leadership. As a sign of its commitment and confidence in the standalone beverage business, Trian is willing to buy additional shares and, if asked, join the Board of a newly formed beverage company to help lead it on the best path forward.
  • The market has spoken: the status quo is not working and the market agrees with Trian that change is needed. Last July, Trian publicly advocated a separation of snacks and beverages and PepsiCo shares traded up to approximately 87 USD per share. Since then, PepsiCo has backed away from a separation of snacks and beverages, culminating with last week´s announcement. PepsiCo shares have now retreated to 77,10 USD as of yesterday´s close, a loss of approximately 15 billion USD in market value.

The complete letter to PepsiCo´ Board and the updated white paper – detailing why separating global snacks and beverages into two independent public companies would be the right long-term decision for the business and would create substantial value for shareholders – is available on Trian Partners´ web server.