Nelson Peltz: PepsiCo Should Buy Mondelez

Pepsi

The soft drink business is in decline, and it’s time for PepsiCo (NYSE:PEP) to act, according to Nelson Peltz. Peltz, a founding member of Trian Fund Management, told CNBC that one solution is for the soda and snack maker to acquire Mondelez International (NASDAQ:MDLZ), which specializes in sweet snack foods. Peltz’s fund has a significant stake in both companies and is planning to release a white paper on the plan in the near future.

Peltz sat down with Andrew Ross Sorkin at the CNBC Delivering Alpha Conference in New York’s Pierre Hotel, where he delivered the remarks on Wednesday. Peltz was instrumental in the move to spin off Mondelez from Kraft (NASDAQ:KRFT) in 2012, but said he sees bigger things for the company as part of PepsiCo.

“Pepsi is at a crossroads at this point in time. They have a cash business and a growth business,” he said, referring to the soft drink segment as the business at a standstill. “The carbonated soft drink business is just not growing…Tastes have changed. People have changed.” He outlined two separate plans for Pepsi at this fork in the road.

Mondelez is the producer of sweets like Oreo cookies, Cadbury chocolates, and Trident gum. Peltz sees much more growth possible in this business, which could be combined with PepsiCo’s highly successful Frito Lay unit. The chips and other salty snacks that fall under the Frito Lay unit make up about two-thirds of Pepsi’s business, according to Peltz. The Trian founder sees the combination as a natural fit. If not, he has a Plan B.

The alternative Peltz proposed to Sorkin was spinning off Frito Lay from the soft drink business. In this scenario, the cash business would  not detract from the growth business, which currently involves a perennial “robbing Peter to pay Paul” scenario, according to Peltz.

The public statement is unusual for Peltz, who typically prefers to work behind the scenes when orchestrating a  large deal. In this situation, he chose to bring the media in, and went so far as to urge shareholders to lobby PepsiCo’s board in hopes they’ll take up the issue. He also hinted Mondelez might be in need of a name change, delivering the zinger of the interview.

“It sounds like a disease,” Peltz said. “I’m suffering from Mondelez.”

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