PepsiCo has answered Nelson Peltz’s call to spin off its massive soda business.
Billionaire activist Peltz on Wednesday sent a letter to leading PepsiCo shareholders and investment bankers detailing the changes he would like to see.
“This was a declaration of war,” a source close to the Peltz side said.
PepsiCo Americas Foods CEO Brian Cornell speaking at a Boca Raton, Fla., conference Thursday spent much of his time defending the company’s decision last week to keep its almost equally sized beverages and Frito-Lay sides together.
Cornell, who sources believe is the likely heir apparent to CEO Indra Nooyi, took the expected stand.
“Let’s step all the way back and really talk about the power of the PepsiCo portfolio today in a market like North America. And as you know very well, beverages continue to be the largest sub-category across North American food and beverages.”
“It provides leverage across our entire portfolio. As a combined food and beverage company we are the number one supplier to our customers here in the US.”
Wells Fargo Senior Analyst Bonnie Herzog liked Cornell’s arguments, but is still not enthusiastic about the company’s prospects.
“We believe keeping the business together is ultimately the right decision for now, and we think PepsiCo continues to do a relatively good job of justifying its decision,” she said.
However, Herzog rated PepsiCo a market perform. “The beverage business turnaround is too early to call.”
In order for Peltz to succeed he likely needs to convince one of PepsiCo’s largest shareholders to change their minds. In the summer, Blackrock’s Larry Fink, PepsiCo’s largest shareholder, said he supported PepsiCo’s decision to keep the two divisions together.
Peltz has time to work the phones and gather support since the deadline for launching a proxy fight is 10 months away.
The Peltz team believes its arguments are hard to refute.
PepsiCo’s shares rose 1.2 percent on the Peltz news to close at $78.01.