Forbes reported Thursday that after many earlier dismissals,Pepsi’s (NYSE:PEP) lead director wrote a letter to activist investor Nelson Peltz, informing him once again that Pepsi would not be dividing its snacks and beverage units, regardless of what Peltz and other investors campaign for.
Peltz, whose Trian Fund Management owns a Pepsi stake of more than $1 billion, has long called for a Pepsi split, first beginning his campaign last summer. His arguments came to a head once again last week, when he came out with a new claim that Pepsi should merge its snacks business with another of his holdings, Mondelez International (NASDAQ:MDLZ).
Pepsi denied Peltz’s requests, explaining that the company’s executives had already done an exhaustive analysis of the business and decided against a split, but just in case they weren’t completely clear, Pepsi leader director Ian Cook letter penned a letter to Peltz this week, confirming that Pepsi’s division would stay together and that the response would be the last of the breakup talks.
According to Forbes, Cook’s letter read: “I am writing to advise you that the board and management are comfortable and in complete alignment in rejecting your proposal.” Cook went on to reinforce that Pepsi would not spend any more time evaluating Peltz’s idea.
Cook’s response isn’t expected to go over smoothly with Peltz, as he has long been combative about Pepsi orchestrating a division. The letter confirms suspicions that Pepsi’s patience with the activist investor is wearing thin and that there is clearly frustration on both sides. The letter also affirmed that not only are Pepsi executives in agreement that its soda and snacks segments should stay together, the company’s board of directors is, too.
Before Peltz received his letter this week, he sent his own last Wednesday. The investor sent a 37-page letter to Pepsi’s board of directors, explaining why he continues to believe the company should spin off its struggling beverage business.
Because Pepsi’s snacks segment is performing so much better than its soda division, Peltz that the latter will eventually suffocate the life out of the former. Pepsi conducted an exhaustive strategic review of the proposal earlier in the month and came to the conclusion that it will keep its divisions together, although the company agreed to boost dividends and stock buybacks by 35 percent this year. Peltz wasn’t satisfied with the decision, and he likely won’t be happy about Cook’s letter.
A best-case scenario for Peltz would be Pepsi’s agreement to spin off its underperforming beverage business and buy Mondelez to create a global snacks behemoth. The investor outlined those ambitions in the “white paper” he published in July, and Peltz even went on to secure a board seat at Mondelez, which has brands that include Oreo cookies and Trident gum. However, it is now clear that Peltz’s requests won’t be met and that CEO Indra Nooyi won’t be backing down.
Cook’s letter to Peltz, per Forbes, concluded, “We trust that you appreciate the seriousness with which we have examined your observations and proposal and the firmness with which we reject the proposal to separate the businesses,” continuing, “the financial engineering you propose erodes value for shareholders rather than creates value.”