PepsiCo, Inc. (PEP), Mondelez International Inc (MDLZ), The Coca-Cola Company (KO): Why You Should Care About Oreos

Can you appreciate a good Oreo?

Over the last week, quite a bit of interest has been placed on the traditionally slow-paced consumer goods sector. At the Delivering Alpha Conference, presented by CNBC and Institutional Investor, one institutional investor in particular caused some stir within the sector by outlaying a proposal for PepsiCo, Inc. (NYSE:PEP). Trian Fund Management’s Nelson Peltz stated that Pepsi should acquire snack maker, Mondelez International Inc (NASDAQ:MDLZ). Shares of Mondelez International Inc (NASDAQ:MDLZ) traded slightly higher at $30 per share, well under the proposed range of $35-$38 per share, after the announcement.

Who is Peltz?

Before we go further, I would like to give you some background on Nelson Peltz to better weight the value of his proposal. Peltz got his start in the food industry in 1963 after dropping out college to help his family business. He worked for his father’s wholesale food distribution business, which delivered fresh produce and frozen food to restaurants in New York. Peltz eventually took over the company, and over the next 15 years he took the company’s revenue from $2.5 million to $150 million prior to it being acquired in 1988. Since then, he has built himself a reputation as an aggressive activist investor with involvement in deals including Kraft, Cadbury, Snapple, and Wendy’s, to name just a few. According to the most recent regulatory fillings, Trian owned 12 million shares of Pepsi and 40 million shares of Mondelez International Inc (NASDAQ:MDLZ). With these positions, Peltz, of course, carries bias. However, the guy seems to know what he is doing within the food sector.

The proposal

While Pepsi has worked especially hard over the last few years to couple its portfolio of drinks and snacks together, Peltz believes splitting up these two business segments would be the most rewarding path for shareholders. Peltz believes Pepsi should offer between $35-$38 per share for Mondelez International Inc (NASDAQ:MDLZ) to better establish its foothold within the snacks industry. Today, he believes the company has two options to unlock shareholder value.

The first: split up the newly formed company by business segment, food and drinks. Peltz believes by splitting up, the company’s great shareholder value would be realized, thus sending shares higher by roughly 100%. The second: just split up Pepsi the way it is today without the acquisition of Mondelez International Inc (NASDAQ:MDLZ). Management has been strongly opposed to these ideas, yet I feel management will have to give these ideas consideration, as increasing pressure from a number of other powerful shareholders is starting to show.