Proposing a Value-Enhancing Deal for PepsiCo, Inc. (PEP)

Page 1 of 2
PepsiCo, Inc. (NYSE:PEP) has outperformed most of its peers over the past 12 months. After trailing The Coca-Cola Company (NYSE:KO) for a long period of time, the company has caught up and now trades at a very small discount to Buffett’s favorite company.
PepsiCo, Inc. (NYSE:PEP)
There are two explanations for such overperformance. First of all, last year PepsiCo, Inc. (NYSE:PEP) presented a medium-term strategic plan, which was followed by good operating results. Secondly, the market is expecting a large-scale strategic change. Here I will focus on the much-awaited strategic change. Specifically, I will analyze the possibility of PepsiCo, Inc. (NYSE:PEP) dividing itself into one food (snacks) company and another beverage company. I think that if this were to happen many other enterprises would be interested into merging with those separate entities.
Here, I will examine the pros and cons of a possible merger of PepsiCo, Inc. (NYSE:PEP)’s beverage business with Anheuser Busch Inbev SA (ADR) (NYSE:BUD), which already distributes PepsiCo, Inc. (NYSE:PEP) beverage products in various parts of Latin America, such as Brazil and Argentina. But first, I will review the pros and cons of a potential merger between PepsiCo, Inc. (NYSE:PEP)’s food business with Mondelez International Inc (NASDAQ:MDLZ).
The absolute world-wide snacks powerhouse.
If PepsiCo’s food business would merge with Mondelez International Inc (NASDAQ:MDLZ), I see a number of significant pros.
Pros:
- Global top-line of $68 billion would make this food company the world’s second largest.
- The combined advertising budget would be as large as $3 billion, which would be one of the largest in the food industry .
- Mondelez would get a better exposure to emerging markets while both companies could cut costs in developed markets.
- The two companies could leverage their unique market position through combining their  procurement and R&D platforms. The combined R&D budget could go as high as $700 million (the second largest in the food industry).
Cons: There is essentially one–high break-up costs. According to Mondelez International Inc (NASDAQ:MDLZ)’s filings, the total break up costs at the Kraft-Mondelez de-merger were as high as $2.7 billion. Taking into account that deal, Credit Suisse’s analysts calculate that de-merging PepsiCo would come with one-time costs that could go as high as $2.1 billion (the calculation is made by adding up on-going synergies that do exists between PepsiCo’s food and beverage units).
A marriage that could be extended from Latin America to the world.
Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!