PepsiCo Shares Could Gain 49% in Split

PepsiCo Inc. (NYSE:PEP) shareholders could be looking at a 49% gain if CEO Indra Nooyi decides to split the soft drinks business from the company’s snack foods business.

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PepsiCo, the world’s largest snack-foods maker and second-largest soda producer, has seen its market value decline by almost $11 billion in the last year, its stock falling 9.7% to $60.39. Meanwhile, competitor Coca-Cola Co. (NYSE:KO) has watched its shares advance 22%, while Kraft (NYSE:KFT), which last month announced that it would split its grocery business from its global snacks business, has climbed 9.3%. Edward Jones & Co. analysts say that splitting PepsiCo’s soda and Gatorade unit from the unit responsible for snack foods like Doritos and Lay’s chips may value the combined entity at $90 a share.

PepsiCo would be in good company — Tyco (TYCO) disclosed plans this week to split into three separate companies, while McGraw-Hill (NYSE:MHP) said it will separate its education business from its financial ratings business. Dr. Pepper Snapple Group Inc. (NYSE:DPS) has seen its shares soar 52% since its spinoff in 2008. You go through these cycles where you build empires and you break them apart. We’re going through a cycle where the investment bankers are convincing companies smaller is better and the sum of the parts is worth more than the whole,” said Jack Russo, an analyst for Edward Jones in St. Louis.

However, in an e-mailed statement yesterday, Pepsico said, “The combination of our snack and beverage portfolios creates significant value for our shareholders through synergies driven by a common customer base and distribution platform, supplier leverage and shared infrastructure.” The e-mail did admit that “value of this combined portfolio has been greatest in our international markets” but said the company is now “well positioned to realize further benefits in North America following the successful integration of our bottling business.”

PepsiCo announced two new groups that will market snacks and drinks together; The Power of One – Americas Council and the Global Snacks Group, both of which will be run by John Compton, CEO of PepsiCo Americas Foods. The company also reiterated its full-year profit forecast, made in July, despite the fact that its market value had dropped to $95.6 billion as of yesterday, down from $106.4 billion a year ago. In that time, Coca-Cola’s market value climbed from $28.3 billion to $162.2 billion. In fact, most of PepsiCo’s competitors have been thriving — the Standard & Poor’s Consumer Staples Index has increased 10% in the past year, while The Hershey Company (NYSE:HSY), Kellogg (NYSE:K), and General Mills (NYSE:GIS) have all watched their share prices soar.

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Analysts suspect PepsiCo’s management will be watching Kraft’s split closely to see how it unfolds. A model from Edward Jones has the snacks business worth about $50 a share while the beverage business would be valued at $40 a share. Bill Pecoriello, CEO of Consumer Edge Research LLC, estimates that PepsiCO’s beverage business may be worth $55 billion while the snacks business may be worth $80 billion, making them worth a combined $70 a share, a roughly 16% premium to PepsiCo’s current share price. Most estimates value the combined businesses at upwards of $70 a share.