The recent stake-building in Pepsi and Mondelez – formerly known as Kraft Foods - by Nelson Peltz, one of America's best-known corporate raiders, presents several possible outcomes… These range from passive strategic shareholding, to forcing Pepsi to split its business along the lines of the Mondelez split into global snacks and Kraft grocery, to a full-blown merger of the two companies.
Given that Peltz, in the current climate, is well-known in the shareholder community as a fearless activist investor willing to agitate for strategic change and take on company boards, we can rule out passivity, whilst the Pepsi demerge option would seem like an intermediate step….
From a category impact point of view, it is probably best to explore the implications of a possible £112bn merger…
Key will be the usual pricing and terms disparity issues, causing post-merger delays as the new company works through the detail of the resulting implications at the supplier-retailer interface. Any differences will require the negotiation of a rationalised set of trading terms and conditions, dealing with a trade that wants to go for the lowest common denominator ( and appropriate compensation for ‘immovable’ terms) within an over-riding desire to simplify their overall trading relationship with the company.
At global level, this may extend to global retailers wanting to deal with ‘one face’, a challenge to the differing account management structures in each company, apart from the additional complication of the involvement of bottlers in the Pepsi trade-mix, at global, regional and country level….
A key concern for some retailers may be resulting size of its new supplier… This means that some of the major multiples may attempt to reduce their level of dependence by creating new/increased alliances with other suppliers in the categories, with obvious impacts on different brands.
Obviously, category members will drill down to explore specifics in terms of changes in relative competitive appeal, government-forced disposals of over-lapping brands and the resulting changes in category dynamics, seeking opportunities at each stage in the merger process…
On balance, given the above ‘distractions’, quite apart from the potential issues with governments at global, regional and local level, a possible merger would appear to represent more opportunities for the competition than gains for Pepsi-Kraft, at this stage…
Hopefully, Mr Peltz can be persuaded that the potential negative impacts will outweigh possible gains in shareholder value from a forced merger, in these already over-complicated times……
Given that Peltz, in the current climate, is well-known in the shareholder community as a fearless activist investor willing to agitate for strategic change and take on company boards, we can rule out passivity, whilst the Pepsi demerge option would seem like an intermediate step….
From a category impact point of view, it is probably best to explore the implications of a possible £112bn merger…
Key will be the usual pricing and terms disparity issues, causing post-merger delays as the new company works through the detail of the resulting implications at the supplier-retailer interface. Any differences will require the negotiation of a rationalised set of trading terms and conditions, dealing with a trade that wants to go for the lowest common denominator ( and appropriate compensation for ‘immovable’ terms) within an over-riding desire to simplify their overall trading relationship with the company.
At global level, this may extend to global retailers wanting to deal with ‘one face’, a challenge to the differing account management structures in each company, apart from the additional complication of the involvement of bottlers in the Pepsi trade-mix, at global, regional and country level….
A key concern for some retailers may be resulting size of its new supplier… This means that some of the major multiples may attempt to reduce their level of dependence by creating new/increased alliances with other suppliers in the categories, with obvious impacts on different brands.
Obviously, category members will drill down to explore specifics in terms of changes in relative competitive appeal, government-forced disposals of over-lapping brands and the resulting changes in category dynamics, seeking opportunities at each stage in the merger process…
On balance, given the above ‘distractions’, quite apart from the potential issues with governments at global, regional and local level, a possible merger would appear to represent more opportunities for the competition than gains for Pepsi-Kraft, at this stage…
Hopefully, Mr Peltz can be persuaded that the potential negative impacts will outweigh possible gains in shareholder value from a forced merger, in these already over-complicated times……
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