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Activist Investor Takes $600M Stake In Pepsico (PEP)

 May 16, 2012 12:39 PM

Activist investor Ralph Whitworth's Relational Investors LLC has taken a stake worth around $600 million in PepsiCo Inc. (NYSE: PEP). The move comes as the food and beverage giant is trying to revive its U.S. soft drink business and regain market share from rival Coca-Cola (NYSE: KO).

In a filing with the U.S. Securities and Exchange Commission, San Diego-based asset manager Relational Investors disclosed it owned 8.98 million shares of PepsiCo or 0.6 percent as of March 31, 2012.

Relational Investors is perhaps best known for its shareholder activism, urging companies to consider sale or spin off underperforming businesses.

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Analysts and investors have been suggesting PepsiCo to break up the company's slow-growing beverage and stronger-performing snacks units, which Chief Executive Officer Indra Nooyi has dismissed.

Reliance Investors would prefer the businesses be split. The North American beverage unit could possibly be taken private if market conditions were favorable, a report from the Wall Street Journal quoted people familiar with Relational's strategy as saying.

The PepsiCo stake disclosed by Relational is relatively small and it is difficult to acquire bigger stakes for a company of PepsiCo's size.

Nooyi is working on boosting the company's North American beverage business that includes ramping up marketing spending and slashing thousands of jobs.

[Related -Coca-Cola Company (KO) Dividend Stock Analysis]

PepsiCo - the maker of Tropicana orange juice, Quaker oatmeal and Frito-Lay potato chips - had announced plans early this year to cut nearly 8,700 jobs, or 3 percent of its global workforce, as it sees $1.5 billion in new cost savings by 2014.

Last month, the company, with a market capitalization of $107.28 billion, posted a fall in fourth-quarter earnings as rising commodity costs offset revenue growth.

A spokesman for Pepsico said the company has had "constructive" meetings with Relational. PepsiCo's senior management meets regularly with investors, and Relational was a respected institution, he said.

PEP shares, which have been trading in the 52-week range between $58.50 and $71.89, added 1.02 percent to trade at $68.54 on Wednesday.

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