Is PepsiCo Headed for the Asset Sale Exit Ramp?

Barron’s recently reported on a truce being declared between PepsiCo (PEP) and activist investor Peltz. It appears that owning 1% of an enterprise’s stock can get you traction that enables you to influence the make-up of the Board of Directors. A new Director is up for nomination, William R. Johnson who was the past CEO of H.J. Heinz. Heinz is now privately owned by 3G Capital and Berkshire Capital. The sale took place after a series of cost cuts and asset sales. Was that a success? A success for the consumer? Better products? Lower prices for the same value? How about the employees? Better careers? Humm, no mention of that, just the sale to Berkshire and 3G at a 20% premium. I wonder if PepsiCo parts are headed for the asset sale exit ramp on the consumer products highway.

Currently, PepsiCo is trading in the fair value range at a 7.9% premium over fair value. The stock has shown a steady price increase since 1990 and increased the dividend throughout the period. Since the low in early 2009 the stock has increased by 98%.

I have to ask the question, is the company doing poorly or does someone see added value by breaking up the company? What do the other 99% of the shareholders think? Why are they not active in expressing an opinion? Is the future for PepsiCo short term?

I agree with Bob Burnstine of Fairpointe Capital with a target price of $115. That is when PepsiCo will be at 130% of Fair Value and overvalued enough that it will be time to consider selling. Unfortunately, I’m not sure what happens to PepsiCo as an enterprise. Maybe the 99% will eventually speak up.

For more interesting information see Barron’s 26 January 2015, page 11 for a story, Activist Peltz Calls Truce with Pepsi, by Robin Goldwin Blumenthal.

For a detailed graph see: https://www.tradingview.com/x/fhFW8iwT/

By | 2015-01-28T19:03:31+00:00 January 28th, 2015|Categories: Money Basics|Tags: , , , |0 Comments

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