Some PepsiCo investors are showing caution toward activist shareholder Elliott Investment Management’s proposal to spin off the company’s bottling network, even as they back its calls for cost cuts and the sale of underperforming brands. Elliott, which recently disclosed a $4 billion stake in the food and beverage giant, argues that separating bottling operations could raise margins and simplify the $200 billion company. The hedge fund points to Coca-Cola’s decision to refranchise its bottlers nearly a decade ago as proof of the model’s success.

In its 75-page report, Elliott suggested PepsiCo should focus more on its flagship snacks and sodas while exiting slower-growth units like Quaker. It also noted that PepsiCo’s beverage margins lag Coca-Cola’s by as much as 10 percentage points, a gap that refranchising could help close. But some long-term investors countered that a separation would be costly, complex, and drag on profits for years. They argue the company should first address performance in its beverages division, which has been losing ground to competitors like Keurig Dr Pepper.

Portfolio manager Kai Lehmann of Flossbach von Storch, one of PepsiCo’s top 30 shareholders, said the bottling spin-off appears attractive on paper but would initially hurt margins. Others pointed out that Coca-Cola’s refranchising process took more than five years and involved a temporary decline in sales and profit before margins improved. PepsiCo, led by CEO Ramon Laguarta since 2018, has instead been working to integrate its chips and sodas businesses while pursuing acquisitions aimed at healthier product lines.

Elliott has not set a firm timeline for PepsiCo to act but has signaled impatience with what it views as slow progress under current management. Analysts said the hedge fund has a track record of escalating campaigns if its proposals are ignored, raising pressure on the company’s board. Still, Elliott has so far stopped short of publicly criticizing PepsiCo’s leadership, keeping discussions behind closed doors. PepsiCo said it is maintaining an “active dialogue” with investors and will review Elliott’s presentation.

Some shareholders and analysts favor Elliott’s idea of divesting smaller brands as a more immediate step. Selling Quaker, for example, could bring in roughly $6 billion and help offset the financial impact of spinning off bottling operations. Franchisees also voiced support for refranchising, saying local bottlers could serve retailers more effectively than PepsiCo’s centralized system. But skeptics warn the transition would require years of investment before returns materialize, leaving the company balancing investor impatience with the realities of a slow-moving overhaul.

Source: Reuters.