Activist Billionaire Investor Nelson Peltz Presses PepsiCo to Spin Off Beverages and Buy Mondelez

Updated July 17, 2013, 10:03 p.m. ET

Peltz Presses PepsiCo to Spin Off Beverages and Buy Mondelez

MIKE ESTERL, JULIET CHUNG and JULIE JARGON

Activist shareholder Nelson Peltz said he is urging PepsiCo Inc. PEP +1.45% to acquire Mondelez International Inc. MDLZ +2.13% to create a global snack giant and spin off PepsiCo’s underperforming beverage business. But PepsiCo “right now doesn’t love” the proposed deal, Mr. Peltz said in an interview on CNBC, adding that he is continuing to talk with the snack and beverage company.If PepsiCo doesn’t buy Mondelez, it should still split its faster-growing snack business from its beverage business, said Mr. Peltz, whose Trian Fund Management LP amassed stakes of more than $1 billion in both PepsiCo and Mondelez earlier this year.

Speculation has been rife for months on Wall Street that Mr. Peltz would push for the massive deals. But it is unclear if he has enough support among shareholders to overcome opposition from PepsiCo, which has insisted it doesn’t need any big transactions and that it benefits from its combined snack and beverage business. Shares in both companies moved higher on the news—but not much.

PepsiCo’s share price on the New York Stock Exchange closed 1.5% higher at $85.24. The company has a stock market capitalization of about $130 billion. It derived roughly half of its $65 billion in revenue last year from snacks and the other half from beverages. Its brands include Lay’s potato chips, Quaker oatmeal and namesake cola.

Mondelez’s share price on the Nasdaq closed 2.1% higher at $30.50. The company has a stock market capitalization of roughly $54 billion and had $35 billion in revenue last year. Its brands include Cadbury chocolate, Oreo cookies and Trident gum.

In a statement following Mr. Peltz’s comments, PepsiCo said it is “confident” in its ability to deliver “long-term shareholder value” with its mixed portfolio.

“We have a strong growth strategy and structure in place, and our results to date and returns to our shareholders prove that we are a high performing company and our strategy is working. We continue to make significant progress against our strategic priorities and are focused on delivering results and driving long-term shareholder value,” a PepsiCo spokesman added.

PepsiCo considers an acquisition of Mondelez to be “extremely risky” and “a non-starter” because of the latter company’s underperformance and big exposure to slow-growing markets in Western Europe, according to a person familiar with PepsiCo’s thinking.

Speaking at CNBC’s Delivering Alpha conference, Mr. Peltz said PepsiCo should acquire Mondelez for $35 to $38 a share and then give a 20% dividend of the market capitalization to shareholders before spinning off PepsiCo’s beverage business.

“I’m asking all the shareholders of Pepsi and Mondelez to get your cards and letters out to send them to the boards of Pepsi and Mondelez,” said Mr. Peltz, who also issued a white paper Wednesday and has a track record of pushing for dramatic changes at companies.

Mr. Peltz said PepsiCo is at “a crossroads” as it tries to juggle beverages, which he described as a “cash business,” and snacks, which he characterized as a “growth business.”

“My kids just don’t do soft drinks like the way I did,” he told CNBC. “It is a wonderful business but it isn’t growing.”

PepsiCo fended off calls last year from some investors and industry analysts to split up the company, instead investing more heavily in its underperforming beverage business, whose billion-dollar brands also include Gatorade sports drinks, Tropicana juices and Mountain Dew.

Pressure for dramatic change at PepsiCo has eased in recent months and its stock price has risen more than 20% this year amid signs it has narrowed market-share losses to beverage rival Coca-Cola Co. KO +1.52% and is on track to meet its forecast of 7% earnings-per-share growth this year.

Still, PepsiCo reported a 3% drop in sales volume at its Americas-wide beverage division in the first quarter, including a mid-single-digit decline in soda in North America. U.S. soda consumption has declined eight straight years industrywide. By contrast, first-quarter volumes at PepsiCo’s North American snack business, which also includes chip brands Tostitos and Cheetos, rose 4%.

Mr. Peltz said Wednesday he decided to go public with his plan after gaining little traction with PepsiCo management.

“We’ve sat on our hands; we’ve decided it’s time to open the dialogue,” Mr. Peltz told CNBC.

PepsiCo confirmed in April it was in discussions with Mr. Peltz and has since reiterated it would update investors on its strategic options by early next year.

Mr. Peltz also has a history with Mondelez. In 2007, he urged Cadbury PLC to split the company’s drink and candy businesses, which Cadbury did a few months later. The same year he began buying shares in Kraft Foods Inc., later urging the food giant to buy Cadbury and pushing for Kraft to split in two by separating its North American grocery staples unit and international snack business.

That split happened last October, with the snack business renamed Mondelez.

A Mondelez spokesman said the company “regularly engages in meaningful conversations with its shareholders and looks forward to meeting with Trian to learn about their perspectives in more detail.”