The ongoing tit-for-tat between PepsiCo and activist investor Nelson Peltz is back in the news, and it’s getting a little personal.
Two weeks after PepsiCo’s board of directors roundly rejected a proposal from Peltz’s Trian Fund Management, in which the investment firm repeated its call for the cola giant to split its snack and beverage divisions into two separate companies, Trian yesterday sent a letter to PepsiCo’s board calling into question the credibility of company management and asking it to provide shareholders with analytical support for its continued reliance on the “Power of One” strategy. The strategy is based on the idea that selling snacks and beverages as part of a single portfolio gives the company a stronger platform to work with.
“We believe the Board and management are obligated to provide shareholders substance and analytics – not just platitudes and rhetoric – to defend the alleged benefits of the ‘Power of One,’” Trian wrote.
Trian’s proposal came days after PepsiCo’s 2013 Q4 earnings call in which CEO Indra Nooyi stated that after an “exhaustive review,” the company would retain its current operating structure. In a lengthy white paper which reviewed the financial performance of PepsiCo since 2006 and offered an examination of its “Power of One” strategy, Trian, which owns approximately $1.3 billion worth of PepsiCo shares, believes that the strategy “is largely responsible for a diminished PepsiCo culture and deteriorating performance.”
“We believe that separating snacks and beverages would create a clean structural break that would eliminate corporate bureaucracy, return power and autonomy to the operating divisions, increase accountability and re-energize division management,” Trian wrote.
On Feb 27, Ian Cook, Presiding Director of the Board of Directors of PepsiCo, responded with a letter to Trian stating “the board and management are comfortable and in complete alignment in rejecting your proposal.”
“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. “Our board and management team are confident in the thoroughness of this analysis and in the conclusion that PepsiCo’s value is maximized as an integrated food and beverage company.”
In response, Trian described Cook’s letter, which ended with “We thank you for your interest in PepsiCo,” as having a “dismissive tone,” and that he does not “appreciate the degree to which PepsiCo’s shareholders, the owners of the company, are frustrated.”
Trian stated that it stands by its research and insists that PepsiCo furnish “shareholders with information and transparency” that address its findings.
“Our white paper is based on more than a year of exhaustive due diligence as well as decades of experience in the beverage industry as a former supplier and competitor,” Trian wrote. “Our sources include publicly available information filed by the company, industry data and conversations with analysts, industry participants, customers, other knowledgeable sources and competitors from around the world. Among the sources we spoke with are some of the most respected people in the consumer products industry.”