The Trian Group first obtained their interests in the Issuer (Dr Pepper Snapple Group (DPS)) through their acquisition of interests in Cadbury Schweppes (CBY) plc (“Cadbury”) starting in December 2006, at which time the Issuer’s business was a part of Cadbury. The Issuer was spun off from Cadbury in May 2008, in connection with which the Trian Group’s interests in Cadbury were converted into separate interests in the Issuer and in Cadbury plc. Thereafter, the Filing Persons (Trian) purchased additional interests in the Issuer.
The Trian Group recently increased their interests in the Issuer because they believe that the Shares are currently undervalued in the market place and represent an attractive investment opportunity. Since the Issuer was spun off from Cadbury and first began trading as a stand-alone public company, total shareholder returns have been approximately -40.7%. This compares with the S&P 500 Beverages Index and the S&P 500 Consumer Staples Index, where total shareholder returns have been approximately -12.6% and -15.2%, respectively, during that same period.
The Trian Group has met with members of the Issuer’s Board of Directors and management to discuss the Issuer’s business. During these discussions, the Trian Group communicated their belief and concern that the investment community perceives the Issuer as more of a beverage bottler than a branded beverage company, despite the fact that the Issuer owns its most important brands and therefore, relative to bottlers, has higher margins, higher free cash flow as a percentage of sales and greater control over brand marketing. Furthermore, the Issuer’s bottling division contributed less than 5% to underlying operating profit based on trailing twelve month financials, whereas the balance of underlying operating profit was primarily derived from the sale of branded concentrate and finished goods, which typically enjoy higher margins than many food companies. The Trian Group also shared during these discussions examples of past investments they (or entities affiliated with them) made in which they had created significant value by working together with management teams to improve operations and free cash flow. The Trian Group sees opportunities to create value at the Issuer through sharper strategic focus, better operational execution and more efficient uses of capital. The Trian Group will seek to continue to have discussions with representatives of the Issuer regarding certain operational improvements and changes in strategy that the Filing Persons would like to see implemented in order to increase free cash flow and enhance shareholder value.