PepsiCo Shares Surge as Elliott Takes $4B Activist Stake
Activist investor is urging the beverage giant to overhaul its bottling operations to boost performance and close the gap with rival Coca-Cola.
PepsiCo, Inc. (PEP) shares jumped Tuesday after activist investor Elliott Investment Management disclosed it has built a $4 billion stake in the consumer goods giant. The firm is pressuring PepsiCo's board to implement strategic changes, including a potential spinoff of its bottling operations, to unlock shareholder value and address what it calls a period of significant underperformance.
In a letter and presentation sent to the company's board, to improve operational focus and financial results. The activist argues that PepsiCo has faced a series of strategic challenges that have led to "sharp stock-price underperformance and a highly dislocated valuation." Over the past two years, PepsiCo's stock has fallen 13.5%, while shares of chief rival Coca-Cola have climbed 15.9%.
The centerpiece of Elliott's proposal is for PepsiCo to refranchise its "operationally intensive" bottling network, specifically the PepsiCo Beverages North America (PBNA) division. The firm points to Coca-Cola's successful refranchising of its bottling operations in 2017, a move that led to soaring margins. Elliott contends that separating the capital-intensive bottling business would allow PepsiCo to focus on its core competencies of brand building and marketing.
"The current structure of PBNA has failed to deliver for many years and its shortcomings are more evident than ever," Elliott stated in its presentation, urging PepsiCo to create a more focused and streamlined portfolio. The market reacted positively to the news, with PepsiCo's stock rising as much as 6.2% in trading before closing up 1.6%.
PepsiCo acknowledged receipt of Elliott's letter and stated that it maintains an active dialogue with shareholders. "We are confident that the successful execution of these initiatives positions PepsiCo to accelerate growth, strengthen our competitive advantage, and deliver meaningful, long-term value for our shareholders," the company said in a statement. While PepsiCo remains confident in its current strategy, it now faces public pressure to from one of Wall Street's most influential activist investors.