- Trian Fund Management has sold its stake in PepsiCo, according to a regulatory filing Friday. Trian had turned a profit of more than $500 million since buying its shares in late 2012.
- Since summer 2013, Trian urged PepsiCo to spin off its beverage business from its higher-performing snacks business. This eventually led to a truce in January 2015, when PepsiCo added Trian operational partner William Johnson to the company's board, and Trian backed off its demands for the split.
- PepsiCo's share price returned 49% since the day prior to Trian's initial investment, as compared to 43% return for the S&P 500 and 24% for Coca-Cola, according to The Wall Street Journal. PepsiCo's shares fell about 2% Friday.
Trian and its leader, billionaire investor Nelson Peltz, believed investors would benefit by allowing each segment to pursue separate management strategies. The beverage business, which has been dragged down by soda, could pay out substantial dividends while the snacks business — and its stock price — would be free to grow, especially if it merged with Mondelez, another Trian investment.
Trian had already successfully enacted the same strategy at Cadbury Schweppes, which split into Cadbury and the Dr Pepper Snapple Group in 2008. Dr Pepper Snapple Group has outperformed on earnings reports compared to its major competitors with growth in both carbonated and non-carbonated beverages. Separating from the chocolate business to adjust management perspective and strategy may have been what DPS needed to ensure a competitive future in both crowded and struggling categories.
However, PepsiCo CEO Indra Nooyi didn't back down from her belief in the company structure and that the company benefited from its larger scale. The company maintained that perspective after an "exhaustive" review in February 2014. Offering Trian the board seat a year later quieted the fund on the company split, but PepsiCo's recent performance wasn't enough to keep the fund hanging around permanently.
In its most recent earnings report, PepsiCo beat analysts' profit expectations, though earnings still fell year over year. Gross margin increased for the 15th consecutive quarter, by 1.3 percentage points, demonstrating the payoff for PepsiCo's years of cost-cutting efforts. Quarterly revenue dipped 2.9%, but organic revenue increased 3.5%. Both snacks and beverages in North America saw a sales uptick, at 3% and 1.5% respectively, but the Quaker segment and international businesses underperformed. As of the end of last year, Trian owned 18.3 million shares, or about 1.3% of PepsiCo, Bloomberg reported.
Another company facing investor pressure is Mondelez. CEO Irene Rosenfeld stated publicly last year, "I’m successfully running Mondelez for all shareholders — without the activists’ help." If PepsiCo and Indra Nooyi can weather the demands of investors and activists, Mondelez (and others in the industry) could too.
"Trian believes PepsiCo has addressed many operational issues identified by Trian – management has increased productivity efforts, reduced overhead, increased advertising investment, and delivered consistent earnings growth on a constant currency basis," Trian said in a statement.