Elliott Sends Presentation to Board of Directors of PepsiCo Inc.
Highlights Rare Opportunity to Revitalize a
Seeks to Collaborate with Board and Management on Actionable Opportunities to Improve Performance
Full Presentation and Letter Available at
ElliottLetters.com/
Elliott discussed PepsiCo's recent performance, which has been marked by a series of strategic and operational challenges. These have led to poor financial results, sharp stock-price underperformance and a highly dislocated valuation.
"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 revitalize a leading global enterprise and unlock significant shareholder value," Elliott wrote in its letter.
In its materials, Elliott detailed a clear agenda focused on restoring business momentum. Elliott encouraged PepsiCo's management and Board to embrace change and work toward becoming a faster growing, higher margin and far more valuable company. Elliott expressed its desire to work together to help PepsiCo build on its legacy of success and achieve its full potential.
The presentation and letter can be accessed at ElliottLetters.com/PepsiCo
The full text of the letter follows:
The Board of Directors
Dear Members of the Board:
We are writing on behalf of
The presentation we have published today, "Elliott's Perspectives on PepsiCo," lays out how PepsiCo can re-accelerate growth and boost financial results through greater focus, improved operations, strategic reinvestment and enhanced accountability. By embracing the proposed actions, PepsiCo possesses a unique opportunity to accelerate revenue and earnings growth and drive a meaningful valuation re-rating, which could deliver more than 50% upside to shareholders.
We hope this presentation is received in the spirit in which it is shared: a desire to work together to help PepsiCo build on its legacy of success and achieve its full potential. We have deep respect for the Company and its leaders, and while we support the steps PepsiCo has recently announced, we and our fellow shareholders believe that there is an opportunity for much more. Our goal is to collaborate with the Board and management to return PepsiCo to its rightful place as a market-leading consumer packaged goods (CPG) powerhouse with superior results and impact.
PepsiCo Today
PepsiCo is a storied CPG bellwether with more than
PepsiCo's business comprises three segments:
As our presentation makes clear, despite its strengths, PBNA has underperformed its peers for more than a decade on both growth and margins. This long-term underperformance stems from several related strategic missteps, including self-inflicted share losses in soda, an underperforming vertically integrated bottling structure and a proliferation of new brands and SKUs that has strained focus and execution.
For years, the disappointing performance of PepsiCo's beverage business was more than offset by its resilient and high-performing foods business, PFNA. More recently, however, PFNA has begun to falter. Growth has slowed due to a challenging consumer backdrop and series of PepsiCo-specific issues, while substantial increases in investment spending well beyond the needs of the current demand environment have meaningfully compressed profit margins. We support management's recently announced initiatives to streamline the cost base, but given the degree to which PFNA's performance has eroded relative to its history and peer performance, we believe more action is warranted in order to perform to its potential – both in terms of realigning the cost base as well as evaluating other opportunities to improve efficiency and focus.
This lack of strategic clarity, decelerating growth and eroding profitability in the North American food and beverage businesses has obscured PepsiCo's enormous potential, including the significant attractiveness of its fast-growing International business. The result is that PepsiCo – long admired as one of the world's most respected and well-run CPG businesses – 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 revitalize a leading global enterprise and unlock significant shareholder value.
Reinvigorating PepsiCo
Fortunately for PepsiCo, its problems are within its power to address. Its core brand portfolio remains among the most attractive in the CPG industry and its structural moats are as powerful as ever. As our presentation lays out, a clear agenda focused on restoring momentum in
A sharper, focused and more competitive PBNA would be fully equipped to take back market share, accelerate revenue growth and deliver meaningful margin expansion. And a leaner, stronger PFNA would have greater flexibility to reinvest in proven brands with enduring consumer loyalty, while also delivering an attractive financial profile. We believe an appropriately ambitious plan – to be clearly communicated, with updated financial targets – comprises the following elements:
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Review PBNA's Structure and Portfolio: PepsiCo should evaluate the potential refranchising of PBNA's operationally intensive bottling network – as its closest peer has and as PepsiCo itself has done in years past – to allow each business to focus on its core competencies. PepsiCo should also conduct a review of its brand and SKU portfolio with the goal of reducing operational complexity and creating a more focused PBNA.
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Realign PFNA's Asset Base and Portfolio: PepsiCo should conduct an operational review focused on aligning PFNA's costs to the present volume reality. Additionally, PFNA should streamline its portfolio by divesting non-core and underperforming assets. These steps would help restore PFNA's profit margins to appropriate levels while also freeing up significant capital for reinvestment.
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Invest in Profitable Growth: Across beverages and foods, the optimization steps outlined above would empower PepsiCo to reignite growth through targeted investment, stronger marketing support, bolder earlier-stage bets and disciplined capital allocation.
- PBNA must defend its core franchises in carbonated soft drinks with incremental marketing and innovation, while selectively expanding in growing categories.
- PFNA can enhance investment in proven brands, improve customer value perception, expand into attractive adjacencies and pursue accretive bolt-on M&A.
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Communicate a Clear Plan and Provide New Targets: PepsiCo leadership must embrace change and then commit to delivering it. Following the reviews outlined above, PepsiCo should clearly communicate to the market how management will implement these initiatives to accelerate growth and improve profitability. This commitment should be accompanied by a specific timeframe and milestones against which to evaluate its execution, including a new set of medium-term financial targets.
- Enhance Oversight and Accountability: After a period of dramatic underperformance, investors will be looking to ensure that PepsiCo is clearly positioned to seize this opportunity. It is critical that the Company put into place the appropriate oversight and structure around these reviews, be accountable for achieving its new targets and ensure that it has the right capabilities to drive successful execution.
The PepsiCo Opportunity
PepsiCo finds itself at a critical inflection point. The Company has an opportunity – and an obligation – to improve financial performance and regain its position as an industry leader. As shown in our presentation, the upside from a more focused, streamlined PepsiCo is substantial – greater strategic focus, faster organic growth and meaningful profit-margin expansion would warrant a valuation in line with peers, the market and PepsiCo's own history, representing a path to more than 50% stock-price increase from today's depressed levels.
Elliott's goals at PepsiCo are straightforward: help the Company sharpen focus, drive innovation, become more efficient and unlock the value that its leading brands, unmatched scale and world-class employees deserve. The path back to winning is clear and achievable.
We thank the Board and management for considering our thoughts, and look forward to working together to advance our shared commitment to PepsiCo's success.
Sincerely,
Marc Steinberg
Partner
Managing Partner
About Elliott
Elliott manages approximately
We bring to each engagement a multidisciplinary team with expertise in strategy and operations, capital markets, corporate governance and communications. Elliott deploys significant resources and engages in extensive due diligence to understand the companies in which it invests. Consistent with this approach, we devoted substantial time and effort to evaluating PepsiCo and developing a perspective on its potential. Our work included rigorous analyses of public filings and market data; conversations with more than 100 former employees and industry executives; third-party surveys of consumers and retailers; and support from a top-tier team of strategy, operational, beverage, legal and financial advisers. This diligence gave us confidence that the priorities outlined in our presentation are actionable, can be achieved in partnership with the Board and management, and will strengthen PepsiCo's competitive position and long-term performance.
About Elliott
1 As of
Media Contact:
(212) 478-1780
cFriedman@elliottmgmt.com
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