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

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.

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).