A breakup of PepsiCo Inc.'s (PEP) beverage and snacks business is resurfacing as long-time CEO Indra Nooyi steps down in favor of Ramon Laguarta.
As shares fall 1.3% today and down almost 9% year to date, some investors are highlighting issues with the company, in particular its corporate structure.
Patrick A. Terrion, principal of Founders Capital Management, a Hartford-based advisory firm that oversees 10,525 shares of PepsiCo in its $219.3 million portfolio said that bureaucracy remains an issue at Pepsi.
"I think Pepsi is worth a lot more than what it's trading at," he said. "There is way too much overhead and bureaucracy."
He noted that PepsiCo Trian Fund Management's Nelson Peltz has targeted Pepsi in the past.
While Peltz's firm seemingly made peace with Nooyi as she departs, the near term of the CEO transition could be an opportune time to reenter for his firm.
"If I were [Nelson Peltz] I would wait about six months into the CEO transition and then I'd make a push," Terrion said. "As a shareholder, absolutely I'd support a call for a breakup."
Analysts have recently stoked this conversation as the share price has struggled and the transition loomed.
"I am not convinced this is good in the short term for numbers, but do think it opens up more potential options on the M&A front--buy or sell anything, even split [the business]," said Ali Dibadj, an analyst at Bernstein, in an interview with The Deal in August.
Both he and RBC Capital Markets analyst suggested at least divestitures of certain assets.
Terrion more aggressively suggested that the company be broken into two companies: snacks and beverages.
"It needs to be broken up into two companies," he explained. "There has been a lot of value destruction under Nooyi in moving investment from high margin products to lower margin products. I understand the push to 'good for you,' but Russian yogurt?"
Pepsi made a commitment to make daily product in Russia back in 2017.
Terrion zeroed in on this value creation as a way to streamline the businesses and keep their focus on the most valuable products. He used Frito Lay as an example of a segment that would benefit from a breakup.
"Basically, I think the way it is right now is too bureaucratic," he said. "It'd be worth more broken up."
As the woman that took on Nelson Peltz and his adamant calls for a breakup leaves her post, it might be one of the more opportune times for activists to speak up.