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Pepsi (NYSE:PEP) and Trian Fund Management are still fighting over the company’s controversial “Power of One” strategy, and on Friday, the firm that owns a Pepsi stake of more than $1 billion put its arguments in writing. Trian Partners shared with the public the letter it sent to Pepsi at the end of the week, and now consumers, investors, and analysts can see that Trian is frustrated with the company’s refusal to provide shareholders with the necessary substance and analytics to support its “Power of One” strategy.
Activist investor Nelson Peltz, the founder of Trian, has campaigned for the breakup of Pepsi’s snack and soda units since last summer, but he has been shut down time and time again by CEO Indra Nooyi, along with the company’s board. Talks have especially picked up in 2014, thanks to the continuation of Pepsi’s disappointing sales, but the board has stayed steadfast in their assertion that the company should stay together as one. Pepsi lead director Ian Cook wrote a letter to Peltz late in February saying, “I am writing to advise you that the board and management are comfortable and in complete alignment in rejecting your proposal.” That letter was purposed to be the board’s way of politely telling Peltz to drop it, but it appears as though the investor still didn’t exactly get the point. That letter was promptly responded to just two weeks later, bringing us to the letter we see signed by Trian, today.
As seen in Trian’s letter, evidenced by its first line, “We were extremely disappointed by Mr. Cook’s February 27 response to our white paper,” the firm is not ready to let the issue go to rest, and it wants more specific data that supports Pepsi’s argument that its soda and snack units should stay together. In his own letter, Cook deemed that much of Trian’s data supporting its own argument was “selective” and “in many instances, misused,” but now the firm wants Pepsi’s board to identify the specific data it uses to come to the conclusion that the “Power of One” strategy is Pepsi’s best bet. Especially because the firm stands by the fact that, “Our white paper is based on more than a year of exhaustive due diligence as well as decades of experience in the beverage industry as a former supplier and competitor.”
Trian doesn’t believe that Pepsi provides its shareholders with enough information, and that’s why the firm maintains they, “the owners of the company, are frustrated.” In its letter, it urges the board to provide shareholders with information and transparency, and it requests that the members address the “Trian data” which it previously offered to share with Pepsi, and was refused. As outlined by Trian’s letter, this “Trian data” makes up a number of points — 10, to be exact — but the first three include excessive overhead costs, advertising declines, and volume share losses. The firm argues that it appropriately enlisted each of these points to make its case for a division of the snacks and soda business, while Pepsi continued to stand by the fact in its letter that the data was “misused.”
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In its letter, Trian diligently goes through every one of its claims, and ends with a conclusion that states: “Shareholders own PepsiCo.” The firm argues, “In summary, the assertion in your letter that the Board has carefully studied and rejected our proposal would suffice if management and the Board owned 100 percent of PepsiCo. It might also suffice had PepsiCo delivered consistent top-tier performance over many years. However, PepsiCo’s results can be summed up as follows: during the CEO’s 7+ year tenure, PepsiCo’s total shareholder return of 45 percent has grown at less than half the rate of the Consumer Staples Index (101 percent) and competitors like Coca-Cola (105 percent.) PepsiCo’s EPS growth has also significantly trailed that of peers.”
Will Pepsi buckle under the shareholder pressure? That much is unclear. But what is evident is that Pepsi shareholders are not pleased — not with the “Power of One” strategy, and not with Pepsi’s recent earnings — and they’re not going to keep quiet until Pepsi makes at least some kind of change.
More From Wall St. Cheat Sheet:
- Pepsi to Nelson Peltz: We’re Breaking Up With the Breakup Talks
- Frustration Bubbles Over Pepsi’s United Snacks and Soda Divisions
- PepsiCo Shares the Love: Strong Earnings Mean Bigger Dividends