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).
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.
As I mentioned before, Anheuser Busch Inbev SA (ADR) (NYSE:BUD) already is (though its subsidiary Sao Paulo based subsidiary AmBev) PepsiCo’s biggest bottler. Hence, the combination of these two companies would be a natural one. Besides, Anheuser Busch-InBev is an expert in slashing costs and streamlining operations, which is exactly what PepsiCo needs in the U.S.
Pros:
– Scale in emerging markets particularly where both beverage companies have strong market share presence (Latin America, China,and Russia).
– Distribution synergies would be a big plus.
– Both companies have already a partnership where they jointly purchase goods and services (such as IT Hardware) in the United States. Besides, both have recently teamed up on joint promotions and retail marketing. A full merger could be a natural extension of the relationship that these two companies already have in place.
– Following what has been done in the beer industry, PepsiCo could move to a model where only distribution is outsourced. This means that, in the U.S., a lot of the manufacturing could be kept in-house and consolidated to much larger facilities.
Cons: Again, mainly break-up costs (estimated at $2.1 billion).
The bottom line
Assuming that PepsiCo “de-merges” and both the remaining separate entities (food and beverage) are acquired at average M&A multiples, PepsiCo’s shareholders could benefit hugely. I estimate that if the food business is bought at 14 times EV/EBITDA and the beverage business is bought at 14.5 times EV/EBITDA, taking off $2.1 billion in break-up costs from the total, PepsiCo shares should be valued at $97 (a 17% upside from current market prices).
That said, if the current company breaks up without someone else picking up the pieces, a de-merger would be a disaster. The company would have to pay more than $2 billion in break-up costs and then would lose a lot of currently existing synergies between the two businesses (above all in the U.S.). If I was a shareholder, I would vote for a break-up only if buyers could be found right next to the exit door.
Federico Zaldua has no position in any stocks mentioned. The Motley Fool recommends PepsiCo. The Motley Fool owns shares of PepsiCo. Federico is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Artificial intelligence is the greatest investment opportunity of our lifetime. The time to invest in groundbreaking AI is now, and this stock is a steal!
It’s the revolution reshaping every industry on the planet.
From driverless cars to medical breakthroughs, AI is on the cusp of a global explosion, and savvy investors stand to reap the rewards.
Here’s why this is the prime moment to jump on the AI bandwagon:
Exponential Growth on the Horizon: Forget linear growth – AI is poised for a hockey stick trajectory.
Imagine every sector, from healthcare to finance, infused with superhuman intelligence.
We’re talking disease prediction, hyper-personalized marketing, and automated logistics that streamline everything.
This isn’t a maybe – it’s an inevitability.
Early investors will be the ones positioned to ride the wave of this technological tsunami.
Ground Floor Opportunity: Remember the early days of the internet?
Those who saw the potential of tech giants back then are sitting pretty today.
AI is at a similar inflection point.
We’re not talking about established players – we’re talking about nimble startups with groundbreaking ideas and the potential to become the next Google or Amazon.
This is your chance to get in before the rockets take off!
Disruption is the New Name of the Game: Let’s face it, complacency breeds stagnation.
AI is the ultimate disruptor, and it’s shaking the foundations of traditional industries.
The companies that embrace AI will thrive, while the dinosaurs clinging to outdated methods will be left in the dust.
As an investor, you want to be on the side of the winners, and AI is the winning ticket.
The Talent Pool is Overflowing: The world’s brightest minds are flocking to AI.
From computer scientists to mathematicians, the next generation of innovators is pouring its energy into this field.
This influx of talent guarantees a constant stream of groundbreaking ideas and rapid advancements.
By investing in AI, you’re essentially backing the future.
The future is powered by artificial intelligence, and the time to invest is NOW.
Don’t be a spectator in this technological revolution.
Dive into the AI gold rush and watch your portfolio soar alongside the brightest minds of our generation.
This isn’t just about making money – it’s about being part of the future.
So, buckle up and get ready for the ride of your investment life!
Act Now and Unlock a Potential 10,000% Return: This AI Stock is a Diamond in the Rough (But Our Help is Key!)
The AI revolution is upon us, and savvy investors stand to make a fortune.
But with so many choices, how do you find the hidden gem – the company poised for explosive growth?
That’s where our expertise comes in.
We’ve got the answer, but there’s a twist…
Imagine an AI company so groundbreaking, so far ahead of the curve, that even if its stock price quadrupled today, it would still be considered ridiculously cheap.
That’s the potential you’re looking at. This isn’t just about a decent return – we’re talking about a 10,000% gain over the next decade!
Our research team has identified a hidden gem – an AI company with cutting-edge technology, massive potential, and a current stock price that screams opportunity.
This company boasts the most advanced technology in the AI sector, putting them leagues ahead of competitors.
It’s like having a race car on a go-kart track.
They have a strong possibility of cornering entire markets, becoming the undisputed leader in their field.
Here’s the catch (it’s a good one): To uncover this sleeping giant, you’ll need our exclusive intel.
We want to make sure none of our valued readers miss out on this groundbreaking opportunity!
That’s why we’re slashing the price of our Premium Readership Newsletter by a whopping 70%.
For a ridiculously low price of just $29, you can unlock a year’s worth of in-depth investment research and exclusive insights – that’s less than a single restaurant meal!
Here’s why this is a deal you can’t afford to pass up:
• Access to our Detailed Report on this Game-Changing AI Stock: Our in-depth report dives deep into our #1 AI stock’s groundbreaking technology and massive growth potential.
• 11 New Issues of Our Premium Readership Newsletter: You will also receive 11 new issues and at least one new stock pick per month from our monthly newsletter’s portfolio over the next 12 months. These stocks are handpicked by our research director, Dr. Inan Dogan.
• One free upcoming issue of our 70+ page Quarterly Newsletter: A value of $149
• Bonus Reports: Premium access to members-only fund manager video interviews
• Ad-Free Browsing: Enjoy a year of investment research free from distracting banner and pop-up ads, allowing you to focus on uncovering the next big opportunity.
• 30-Day Money-Back Guarantee: If you’re not absolutely satisfied with our service, we’ll provide a full refund within 30 days, no questions asked.
Space is Limited! Only 1000 spots are available for this exclusive offer. Don’t let this chance slip away – subscribe to our Premium Readership Newsletter today and unlock the potential for a life-changing investment.
Here’s what to do next:
1. Head over to our website and subscribe to our Premium Readership Newsletter for just $29.
2. Enjoy a year of ad-free browsing, exclusive access to our in-depth report on the revolutionary AI company, and the upcoming issues of our Premium Readership Newsletter over the next 12 months.
3. Sit back, relax, and know that you’re backed by our ironclad 30-day money-back guarantee.
Don’t miss out on this incredible opportunity! Subscribe now and take control of your AI investment future!
No worries about auto-renewals! Our 30-Day Money-Back Guarantee applies whether you’re joining us for the first time or renewing your subscription a year later!
I work for one of the largest independent financial publishers in the world – representing over 1 million people in 148 countries.
We’re independently funding today’s broadcast to address something on the mind of every investor in America right now…
Should I put my money in Artificial Intelligence?
Here to answer that for us… and give away his No. 1 free AI recommendation… is 50-year Wall Street titan, Marc Chaikin.
Marc’s been a trader, stockbroker, and analyst. He was the head of the options department at a major brokerage firm and is a sought-after expert for CNBC, Fox Business, Barron’s, and Yahoo! Finance…
But what Marc’s most known for is his award-winning stock-rating system. Which determines whether a stock could shoot sky-high in the next three to six months… or come crashing down.
That’s why Marc’s work appears in every Bloomberg and Reuters terminal on the planet…
And is still used by hundreds of banks, hedge funds, and brokerages to track the billions of dollars flowing in and out of stocks each day.
He’s used this system to survive nine bear markets… create three new indices for the Nasdaq… and even predict the brutal bear market of 2022, 90 days in advance.
