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Activist Investor Peltz Buys Into Pepsi, Mondelez

By Associated Press - Apr 19, 2013 at 5:04PM

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Is a merger in the works?

NEW YORK (AP) -- Activist investor Nelson Peltz has disclosed stakes in Mondelez (MDLZ 2.02%) and PepsiCo (PEP 0.98%), following earlier reports that the billionaire could be pushing for a marriage between the sweet and salty snack giants.

In a statement early Friday, PepsiCo also disclosed that it has held meetings with Peltz's Trian Fund Management in recent weeks to consider its "ideas and initiatives" for long-term growth. A spokesman for Mondelez said the company doesn't comment on contact with specific shareholders.

A representative for Trian declined to comment.

Peltz's disclosures come at a sensitive time for the two U.S. food and drink makers. Mondelez, which makes Oreo cookies and Cadbury chocolates, has stumbled in its first quarters as an independent company after splitting from Kraft Foods.

PepsiCo, which makes Frito-Lay, Tropicana and Quaker Oats, is reviewing restructuring options for its underperforming North American beverage business, including a possible spinoff. If that were to happen, analysts have speculated that PepsiCo would want to buy another snack food maker to remain as big as it is today.

It could be that Peltz has no intention to agitate for a merger. But the New York native is known for building stakes in companies then forcing change.

In 2008, for example, he led a group of investors in pressuring Cadbury Schweppes to split its candy and its weaker beverage business, which later became Dr Pepper Snapple Group (DPS). He was also an active investor in Kraft Foods Group (KRFT.DL) before its split from Mondelez.

In a filing with the Securities and Exchange Commission Friday, Trian said it held a $494.2 million stake in Mondelez and a $269.1 million stake in PepsiCo as of Dec. 31. The firm declined to comment on whether it has since built up those stakes.

Meanwhile, the CEOs of Mondelez International and PepsiCo are no strangers to corporate restructuring, having overseen the radical transformations of their respective companies.

After rising through the ranks at Kraft Foods and its predecessor company for more than two decades, Mondelez CEO Irene Rosenfeld left for a stint as the head of PepsiCo's Frito-Lay between 2004 and 2006.

She returned to Kraft as chief executive a few years later, then orchestrated the purchase of Cadbury, despite bitter resistance from workers at the British candy company and skepticism from shareholders, including Warren Buffett.

The deal greatly extended Kraft's reach in key international markets and laid the groundwork for what came next -- the company's split.

Its international snack unit, which was made significantly larger by the Cadbury deal, would be headed by Rosenfeld and be called Mondelez. The other company held onto the Kraft name, along with North American grocery brands such as Jell-O, Oscar Mayer and Velveeta.

Mondelez was supposed to grow at a faster rate but the company's first few quarters have disappointed investors. And last week, activist investor Bill Ackman disclosed a stake in the company. Ackman's Pershing Square Capital Management said its holding were worth $152.3 million.

On Friday, Mondelez issued a brief statement noting that "it has created significant value through our transformation."

Over at PepsiCo, Indra Nooyi became CEO in 2006 but has been playing a role in the company's evolution for far longer.

The company spun off fast-food chains KFC, Pizza Hut and Taco Bell in 1997. It then snapped up Tropicana in 1998, Quaker Oats in 2000 and Naked Juice in 2006 due in part to her influence, as it pushed to build up its healthier offerings. And more changes could be on the way.

The Purchase, N.Y., company is set to provide an update early next year on a review of its North American beverage business, which for years has lagged The Coca-Cola Co. (NYSE: KO).

PepsiCo reported first-quarter results this week that beat Wall Street expectations. But the North American beverage unit remained a drag despite significant marketing investments over the past year. The company attributed the drop in sales volume in part to its new pricing strategy, which is trying to lessen the reliance on heavy discounting.

In its statement Friday, PepsiCo noted that Trian is a "respected investor" and that it looked forward to "continuing constructive discussions with them."

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Stocks Mentioned

Mondelez International, Inc. Stock Quote
Mondelez International, Inc.
$63.76 (2.02%) $1.26
Kraft Foods Group, Inc. Stock Quote
Kraft Foods Group, Inc.
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$171.77 (0.98%) $1.66
Dr Pepper Snapple Group, Inc. Stock Quote
Dr Pepper Snapple Group, Inc.

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