Elliott Investment Management called for cost reduction and selling off weaker brands at PepsiCo (PEP.O), but its most ambitious proposal, breaking up the bottling network, was met with caution among investors.
Elliott argues that this move would make the company more profitable and focused, as Coca-Cola (KO.N) did years ago.
The fund announced in early September that it had acquired $4 billion worth of shares in PepsiCo and shared its plans to increase profitability in a 75-page report.Investor Concerns
Some major shareholders point out that separating the bottling business would be a costly and time-consuming process.
Flossbach von Storch portfolio manager Kai Lehmann said, “It looks attractive at first glance, but in the short term it will negatively impact profit margins.” It is known that PepsiCo’s operating margin was 14% last year, while Coca-Cola’s reached 24.7% in the same period. Elliott’s proposal stands out with the goal of increasing PepsiCo’s competitiveness.“The Current Situation is Unacceptable”
Under the leadership of PepsiCo CEO Ramon Laguarta, the company is trying to better integrate its snack and beverage divisions. It has also aligned itself with the healthier lifestyle trend by acquiring the Poppi low-calorie beverage brand and the Siete food producer.
Elliott, on the other hand, specifically recommends divesting smaller brands like Quaker.
According to analysts, the sale of Quaker could bring in approximately $6 billion, and this revenue could offset the profit loss resulting from the bottling split.The Future is Uncertain
Elliott’s pressure is creating increasing pressure on PepsiCo management for change. Investors, recalling that Coca-Cola’s similar process lasted more than 5 years, emphasize that PepsiCo should accept temporary revenue losses on the same path.
