Trian Partners: wants PepsiCo and Mondelez to combine

New York / NY. (tfm) Trian Fund Management L.P. (Trian Partners), whose investment funds managed by it currently beneficially own in excess of 1,3 billion USD of shares of common stock of PepsiCo Inc., released a detailed «White Paper» outlining strategic alternatives Trian believes would drive substantial value creation for all PepsiCo shareholders. Trian believes PepsiCo is a world-class company which has a history of making bold and strategic value-enhancing moves, such as the acquisition of Frito-Lay and the separation of Yum! Brands. Trian respects PepsiCo´s management team and has had a constructive relationship with them since 2008.

Trian believes PepsiCo is at a strategic crossroads as secular forces ranging from changing consumer tastes to the increased importance of emerging markets have changed the outlook for its key businesses. Trian believes PepsiCo´s current structure is increasingly unmanageable. While it has a leading portfolio of 22 billion-dollar brands, PepsiCo has underperformed its peers as it grapples with the differing needs of its fast-growth (snacks) and slow-growth (beverages) businesses and the resulting inherent conflict in allocating its resources.

Trian sees the status quo as unsustainable and believes PepsiCo must resolve these structural issues. Now, in the spirit of open and constructive dialogue with all shareholders, Trian is making public its PepsiCo «White Paper». In our on-going discussions with PepsiCo, Trian has urged the company to consider the following strategic alternatives to enhance shareholder value:

Alternative A

Trian believes the way to maximize value at PepsiCo would be to merge PepsiCo with Mondelez International Inc., creating a leading global snacks company with one of the most valuable brand portfolios in the world. PepsiCo could then use this merger as a catalyst to spin off its beverages business. This approach would create substantial cost and revenue synergies and the opportunity for margin and capital structure efficiencies. With substantial overlap between PepsiCo´s and Mondelez´s largest shareholders, both companies´ shareholders would benefit, with Trian estimating this combination could lead to approximately 175 USD of implied value per PepsiCo share and approximately 72 USD of implied value per Mondelez share, by the end of 2015. While Trian believes this strategic alternative creates the most value for shareholders, PepsiCo has indicated that it is not inclined to pursue a Mondelez transaction, although we disagree with their rationale. As a «constructivist» investor, we also understand a company cannot be compelled to complete a transformational merger but we hope they will reconsider their position.

Alternative B:

If PepsiCo does not pursue a transaction with Mondelez, we believe it must separate snacks and beverages. We believe a separation will create a focused snacks leader positioned to have its trading multiple re-rated as it delivers attractive growth and productivity initiatives that hit the bottom line. We believe it will also create a beverages leader whose trading multiple will be re-rated as it combines an efficient capital structure, high dividend and operational improvements to unlock value. Trian believes this strategic alternative could lead to approximately 136 USD to 144 USD of implied value per share by the end of 2015, while preserving the possibility of a strategic transaction in the future, which could create additional value.

About Trian Fund Management L.P.

Founded in 2005 by Nelson Peltz, Peter May and Ed Garden, Trian seeks to invest in high quality but undervalued and under-performing public companies and to work constructively with the management and boards of those companies to significantly enhance shareholder value for all shareholders through a combination of improved operational execution, strategic redirection, more efficient capital allocation and increased focus.

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