PEP
PepsiCo Inc
Deep diving Activist Investor Elliott's Letter to Pepsi
## Background
Elliott has built up a $4b position in Pepsi. They believe there is a 50% upside to the current stock price IF the board follows their guidance.
(just a note for those who read the letter... just like in the Flank steps, the first thing the mention when describing Pepsi is "How do they make money" -- which is just another way to say "what's their business model". There's a reason why it's the first step in researching a stock!)
## Elliott's Recommendations
They call out their brand and distribution networks as powerful "structural moats", which I completely agree with.
Elliott calls out Pepsi's Beverage division as underperforming for more than a decade based on growth and margins. This happened because of 'several strategic misteps', including self-inflicted share losses in soda, an underperforming vertically integrated bottling structure (which they want Pepsi to mimic's Coke's bottling restructuring that happened in 2017), and the proliferation of new brands and SKUs that have strained focus and execution
Elliott calls out that the Beverages misstep has been overshadowed by a decade of Pepsi's food division growth, which is not faltering.
So here's what they want to see:
Review Beverage's Structure and Portfolio... basically restructure their franchised bottling companies, just like Coke did.
Realign Food's Asset Base and Portfolio... divest underperforming brands.
Invest in Profitable Growth... use the money from selling underperforming brands to buy new brands
Commnicate a clear plan and provide new targets... basically embrace the change Elliott is proposing and tell investors about it
Enhance Oversight and Accountability... make management accountable for these changes
Basically recommendations #4 and #5 are corporate raider speak for "give us a board seat(s)".
All in all, Elliott sees a path to more than 50% stock-price increase from today's levels.
What do y'all think? I'm certainly interested.