One of PepsiCo’s largest shareholders has unveiled a plan to transform the “deeply undervalued” company and boost its share price more than 50%.
Hedge fund Elliott Investment Management, which has built a $4bn stake in the North American drinks and snacking giant, surprised PepsiCo’s management with a letter setting out its aims today (2 September).
A “lack of strategic clarity, decelerating growth and eroding profitability in the North American food and beverage businesses has obscured PepsiCo’s enormous potential”, said the letter from Elliott partners Marc Steinberg and Jesse Cohn.
“The result,” they added, “is that PepsiCo has become a dramatic underperformer.
“While unfortunate, this disappointing trajectory has created a historic opportunity. With the right mindset and an appropriately ambitious turnaround plan, PepsiCo today represents a rare chance to revitalise a leading global enterprise and unlock significant shareholder value.”
PepsiCo said it had noted Elliott’s presentation, and would “review its perspectives within the context of our strategy to drive sustainable growth”.
The company’s North American business, worth around 60% of PepsiCo sales and profit, saw organic growth stall in 2024, with operating margin falling three points over the past seven years.
PepsiCo shares have fallen around 15% over the past year, and Elliott estimates put the stock as trading at a 4.1x discount against consumer staple peers, compared with an historic average premium of 1.4x.
PepsiCo shares jumped 6% in early trading after the letter’s publication.
A key complaint by Elliott was against PepsiCo’s vertically integrated bottling structure, one of “several related strategic missteps” alongside the company’s “proliferation of new brands and SKUs that has strained focus and execution”.
Elliott recommended the company refranchise the “operationally intensive” bottling network, as Coca-Cola has done, to allow its North American beverage business to focus on brand-building and innovation.
Elliott manages funds totalling around $76.1bn, and has a decades-long record as activist investor.
Half-year results at PepsiCo, posted in July, showed it rallying after a difficult start to the year thanks to international sales, with North American volumes falling 1% and 2% in food and drinks respectively.
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