PepsiCo Board Rejects Activist Peltz’s Split Proposal in Letter

PepsiCo Inc.’s board sent a letter to activist investor Nelson Peltz firmly rejecting his demand to split the company’s snacks and beverages units, supporting a stance taken by Chief Executive Officer Indra Nooyi.

The board has analyzed Peltz’s proposal seriously and concluded that its “financial engineering” of a breakup would erode value rather than create it, director Ian M. Cook wrote in the letter yesterday.

Peltz told Cook in a Feb. 19 letter that he was “highly disappointed” with PepsiCo’s decision not to heed his proposal and would take the case directly to investors. Peltz, founder of Trian Fund Management LP, said he would also consider holding public shareholder forums while remaining open to discussions with management.

“We have carefully studied management’s extensive analysis of the current company structure and its beverage business and management’s conclusions that much of Trian’s data is selective and, in many instances, misused,” Cook wrote.

Nooyi said on Feb. 13 that keeping the units together was in the best interests of shareholders and that the company was confident it could meet its long-term profit goals. To help reach that target, Nooyi will cut expenses by $5 billion over five years starting in 2015, extending a plan already under way.

Disappointing Forecast

PepsiCo rose 0.5 percent to $79.07 at the close in New York yesterday. Shares of the Purchase, New York-based company have fallen 4.7 percent this year, while the Standard & Poor’s 500 Index rose 0.3 percent.

Peltz, whose Trian Fund owns less than 1 percent of PepsiCo, has pressured Nooyi for months and been critical of the company’s drinks performance in the U.S. Peltz had pushed for a merger with Mondelez International Inc., a plan that Nooyi also rejected.

In his letter to Cook last week, Peltz cited deteriorating North American beverage trends, questionable quality of earnings in 2013 and a disappointing 2014 profit forecast as evidence that the company needs to act. PepsiCo’s rationale for maintaining its current structure is subjective and lacks strong evidence, he said.