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Peltz's Plan for Pepsi and Mondelez

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In an interview to CNBCon Wednesday, activist investor, Nelson Peltz said that it plans to push PepsiCo, Inc. (PEP - Free Report) to take over food giant Mondelez International, Inc. (MDLZ - Free Report) and then spin-off its underperforming beverage business.

Peltz’s investment company, Trian Fund Management, holds major stakes in both the food companies. Even though Pepsi is not in favor of the idea, Peltz said Trian would meet Pepsi and Mondelez’s management soon to negotiate the proposals.

Pepsi’s snack business is growing fast on the back of successful innovations and increased brand building investments. However, the beverage business is lagging. Peltz believes that shifting consumer preferences toward health and wellness and “good-for-you” products is lowering the demand for high calorie soft drinks. Thus, Pepsi and other beverage giants like The Coca-Cola Company (KO - Free Report) are witnessing declining sales of carbonated beverages, especially the colas.

Peltz also said that Pepsi can consider divesting its Frito Lay unit in case it does not want to go ahead with the Mondelez merger.

Bloomberg later reported that Pepsi has no plans to buy Mondelez and it benefits from its combined snack and soft drinks business, according to a company spokesperson. According to the same spokesperson, buying the underperforming Mondelez would be a risky affair and will expose Pepsi to slow growing Western European markets.

Mondelez International focuses on the global food and snacks business of the erstwhile Kraft Foods, which includes several popular brands like Tang, Oreo and Cadbury. Last year, the erstwhile Kraft Foods spun off its North American grocery business into a separate independent company, Kraft Foods Group, Inc. .

PepsiCo has, in the past, issued a statement stating that it is not interested in large acquisitions. Some analysts seem to be in favor of the Pepsi/Mondelez merger as it will create a global snack giant. They believe Pepsi’s salty snacks complement Mondelez’s sweet snacks and coffees. Some analysts also believe that the deal will allow Pepsi to focus on the growing snacks business.

While Pepsi carries a Zacks Rank #3 (Hold), Mondelez has a Zacks Rank #4 (Sell).

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