Nelson Peltz Discloses Massive Stakes in Mondelez International (MDLZ) and PepsiCo (PEP)
Shares of snack giant Mondelez International (MDLZ) rallied last week, after reports that activist investor Nelson Peltz's Trian Fund Management has been accumulating large stakes in both Mondelez and PepsiCo (PEP) since late 2012. Mondelez consists of Kraft Foods' (KRFT) former snack division, which produces well known brands such as Oreo, Chips Ahoy!, Cadbury and Toblerone.
The company was spun off from Kraft in October 2012. Daily Chart
According to SEC filings, Trian Fund had a $494 million stake in Mondelez and a $269 million stake in PepsiCo at the end of 2012. However, CNBC recently reported that Trian's stakes in both companies have risen substantially - to $1.3 billion in Mondelez and $1.4 billion in PepsiCo. Wall Street has been buzzing with speculation of what Peltz plans to do with the two companies. Peltz has enormous power in forcing companies to split and spin off businesses - back in 2008 he pushed Cadbury Schweppes to divide its candy business (Cadbury) from its lagging beverage business, which later became Dr. Pepper Snapple Group (DPS
). A popular opinion circulated by analysts is that Peltz plans to force PepsiCo to spin off its Frito-Lay snack business, which consists of Lays, Ruffles, Cheetos and Doritos, and merge it with Mondelez International. Mondelez would likely go along with that proposition, since CEO Irene Rosenfeld was the former head of Frito-Lay. However, PepsiCo is unlikely to part with Frito-Lay so easily, especially since its recent first quarter earnings reveal the company's dependence on its snack business, especially in North America. PepsiCo has been using Frito-Lay, which posted 4% growth to $3.12 billion, to offset weaker growth of its beverage business. Last Friday, PepsiCo acknowledged that the company had held several meetings with Trian Fund Management to discuss ideas for long-term growth. "In recent weeks, we have held meetings with Trian to discuss and consider their ideas and initiatives as part of our ongoing evaluation of all opportunities to drive long term growth and shareholder value," stated PepsiCo. "Trian is a respected investor, and we look forward to continuing constructive discussions with them." PepsiCo has long been evaluating different strategies to spur growth. Some analysts believe that PepsiCo should acquire another snack food company to keep growing, while others think that the company should spin off Frito-Lay to concentrate its efforts on improving its beverage business against primary rival Coca-Cola (KO
). Any more news regarding Trian Fund is likely to move shares of Mondelez and PepsiCo, which are both regarded as slow moving, low-beta stocks, in the coming weeks. Shares of Mondelez trade at 18 times forward earnings with a 5-year PEG ratio of 1.54, while PepsiCo trades at 17.4 times forward earnings with a 5-year PEG ratio of 2.08. Those metrics indicate that Mondelez is expected to grow slightly faster than PepsiCo, but PepsiCo pays a heftier 2.70% dividend, compared to Mondelez's 1.70%. Other News About MDLZ Nelson Peltz's Trian Fund Discloses Large Stakes In PepsiCo & Mondelez
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Published on Apr 25, 2013
By Leo Sun