Bet On Peltz, Pepsi And Mondelez?

Includes: KHC, KO, MDLZ, PEP
by: Dana Blankenhorn

The big M&A rumor of the day involves investor Nelson Peltz, who has reportedly bought big stakes in PepsiCo (NYSE:PEP) and Mondelez (NASDAQ:MDLZ) with an aim toward bringing them together.

I last wrote about Mondelez in October just as the company was being split off from its former parent, Kraft Foods (KRFT).

The idea was to put the good-for-you foods into Kraft, and the bad-for-you foods like Oreos and Cadbury chocolates into Mondelez. Kraft had been investing most of its marketing dollars into the Mondelez brands, the thinking went, and the move would let it focus more on the weaker brands.

Since then, Mondelez has gone nowhere while Kraft is up 14.5%, Pepsi is also up 11%. Peltz's last move on Cadbury resulted in a break-up of the company into drinks-and-sweets units, with the sweets unit going to Kraft.

Now he apparently wants to get the old band together again, this time with a different lead singer in Pepsi. Either that or he wants Mondelez CEO Irene Rosenfeld given a chance to buy Pepsi's snacks businesses, including Frito-Lay, making MDLZ even stronger than what Motley Fool recently called "the best food company" you can buy.

The latter seems more likely. Before taking over what became Mondelez, Rosenfeld ran Frito-Lay, for Pepsi. If Peltz can engineer the sale of Frito-Lay to Mondelez, he'll have the jockey he wants running the horse she rode in on. Selling Frito-Lay would also let Pepsi focus more on its drinks business, where it trails long-time leader Coca-Cola (NYSE:KO), which has learned to focus exclusively on drinks of all kinds.

So there may indeed be two motivations behind this move. Peltz wants the right jockey riding the horse, and he wants companies focused on one segment, de-conglomerated. My view is this makes sense, and that buying either company here makes sense.

Disclosure: I am long KO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.