PepsiCo Shoots Down Mondelez Merger Rumors
The Purchase, N.Y.-based beverage and snack giant -- which owns the Frito-Lay Inc. portfolio -- issued a short statement Friday after the Telegraph of London said activist investor Nelson Peltz purchased shares of both companies and could push PepsiCo to merge with Mondelez, which is known for its sweets brands including Cadbury and Nabisco.
"As we've said before, we are making strong progress in our strategy to deliver long-term growth and create shareholder value," Pepsico said in its statement.
Some industry watchers have speculated that PepsiCo may spin off its underperforming beverage division. CEO Indra Nooyi tried to quiet those rumors last year with a "Power of One" marketing campaign that featured the company's sodas alongside its chips. However, as the Associated Press reported, PepsiCo has been reviewing options to restructure its North American beverage business and recently said it would provide more thoughts on the matter early next year.
"We certainly wouldn't want to make a change in the business structure while there's still opportunities to unlock value that might be better unlocked while PepsiCo still owns the business," Chief Financial Officer Hugh Johnston said in a call with reporters in February.
Consumer Edge Research CEO Bill Pecoriello noted that the global snack business is much more attractive to PepsiCo than the soda business, which has been declining for years in developed markets such as the United States. If PepsiCo were to spin off its beverage business, he said it would likely want to make a major acquisition to remain as big as it is today, the news agency added.
Last week, Consumer Edge examined the issue of a merger between PepsiCo and Mondelez. It found that the combined company would benefit because there are many regions where one of the companies has a big presence and the other does not.
In places such as the United States where both do big business, Pecoriello said consolidating distribution networks could result in cost savings of $3.4 billion. He also noted that even if PepsiCo spun off its beverage business, it wouldn't necessarily negate the "Power of One" strategy because independent companies could maintain marketing partnerships. For instance, PepsiCo still provides beverages for the fast-food chains owned by Yum Brands Inc., which it spun off in 1997.
A merger would not be without its challenges, however. JP Morgan analyst Ken Goldman told the AP that Mondelez has an array of products that could be too complicated "to appeal to a larger suitor." He also noted that the size of the transaction could raise antitrust issues.
Deerfield, Ill.-based Mondelez International Inc. was officially formed in October when Kraft Foods Inc. completed the spin-off of its global snacks division into an independent company.