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PepsiCo Rejects Peltz Call to Separate Beverage Division

PepsiCo Inc. Soft Drink Bottles Sit on Display
An employee arranges PepsiCo Inc. soft drink bottles on display at a store in Mexico City. Photographer: Susana Gonzalez/Bloomberg

PepsiCo Inc., the world’s largest snack maker, said it won’t split its beverages from foods, rejecting a proposal from activist investor Nelson Peltz. The shares declined in New York trading.

PepsiCo, which owns Frito-Lay, Gatorade and Quaker Oats, said in a statement today that keeping the divisions together is in the best interests of shareholders. Chief Executive Officer Indra Nooyi began a review of the businesses in 2012.

Nooyi’s decision follows pressure from Peltz, who had been critical of the company’s lagging drinks performance in the U.S. Peltz, whose Trian Fund Management LP owns less than 1 percent of PepsiCo, had also pushed for a merger with Mondelez International Inc., a plan he later abandoned.

“There were investors who were hoping for some sort of restructuring of the beverage side,” Jack Russo, an analyst at Edward Jones & Co., said in an interview. “It’s a business that has been lagging, so if you can reduce your exposure to it that should help your returns, but PepsiCo has said they are going to stick with it and try to fix it on their own.”

Russo, who is based in St. Louis, has a buy rating on the shares.

PepsiCo fell 2.2 percent to $79.69 at the close in New York. Shares of the Purchase, New York-based company have fallen 3.9 percent this year, while the Standard & Poor’s 500 Index has slipped 1 percent.

Nooyi also said the company will extend a cost-cutting plan, and will reduce $5 billion in expenses over five years starting in 2015.

Net income in the fourth quarter rose 4.9 percent to $1.74 billion, or $1.12 a share, from $1.66 billion, or $1.06, a year earlier, the company said today. Adjusted earnings per share totaled $1.05. That beat the $1 average of 15 analysts’ estimates compiled by Bloomberg.

Revenue rose 0.8 percent $20.1 billion, matching analysts’ estimates. Snacks volume increased 3 percent in the quarter while beverages advanced 1 percent.

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