Thursday 18 July 2013

Pepsi-Cadbury - a must-check combination?

News that activist investor Nelson Peltz says he wants soft drinks giant PepsiCo to buy Cadbury owner Mondelez and spin off its own underperforming beverage unit should be a  cause of some fundamental ‘what-ifs’ by the key stakeholders, fast.

In case you feel this idea is legless, during an interview on CNBC, Mr Peltz said he had talked about the proposal he called "Plan A" with PepsiCo chief executive Indra Nooyi - See more on NamNews.  

Mondelez International shares rose 64 cents, or 2.1pc, to $30.50 on Wednesday and added another 8 cents in after-hours trading. PepsiCo shares rose $1.22, or 1.5pc, to finish at $85.24.

Mr Peltz is known for building stakes in companies then forcing change. In 2008, for example, he led a group of investors in pressuring Cadbury Schweppes to split its candy and its weaker beverage business, which later became Dr Pepper Snapple Group. He was also an active investor in Kraft Foods before its split from Mondelez.

What now?
Apart from the inevitable year of uncertainty as the competition authorities explore the implications, retailers and the supplier-players revert to the short term and generally miss some obvious strategic opportunities, the proposals will open up the competitive landscape for the opposition. However, pro-active NAMs will remember that, even if the full deal does not go ahead, the management of each company may be forced to make some disposals to appease the activist shareholders…

A final check?
Having conducted your what-ifs by the book, why not try an old lateral thinking trick as a final step in your analysis: assume it has already happened, look back and try to identify the possible pathways that lead to this conclusion.

This may not only reveal some additional options - possibly including Mr Peltz’s ultimate motivations - but may also yield some hitherto unanticipated career-plan clarification….

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