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Bernstein Research analysts have questioned whether PepsiCo may consider splitting its snacks and beverage divisions after Kraft announced the break-up of its business this week.

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Yesterday, Kraft announced that it will separate its drinks brands as part of a plan to split the company in two. The firm will break-up its business in order to create a global snacks company and a North America-based grocery firm.

In a research note today (5 August), Berstein analysts said that PepsiCo may be closer to splitting into snacks and beverages than it had been previously. The analysts added that they, and most investors, often discuss PepsiCo as a "tale of two companies" - snacks and beverages.

"Given the seemingly changed tone from CEO Indra Nooyi and Kraft's recent announcement, we wonder whether PepsiCo may be closer than ever to splitting up," the analysts said.

There may be "many options for a breakup" the analysts noted, but one global snacks company (SnacksCo) and one global beverages company (BevsCo) would likely be the best structure, given the benefits of shared marketing, technology and suchlike.

"SnacksCo would be US$33.2bn in sales and $6.2bn in EBIT, while BevsCo would be $36.1Bbn in sales and $4.8bn in EBIT," they noted. "Our updated 'sum-of-the-parts' analysis suggests ~14% upside for PepsiCo investors if a split were to occur."

The analysts added: "We think the recent Kraft announcement and the overlap in purported advisors to both companies (Boston Consulting Group and Centerview Partners), not to mention Kraft CEO Irene Rosenfeld's pedigree at Frito-Lay, increase the odds of such a split potentially occurring at PepsiCo as well. Of course, for Kraft there was the involvement from respected activist investors (Nelson Peltz and Bill Ackman); perhaps this is something PepsiCo investors may ultimately encounter also."


Sectors: Soft drinks, Water

Companies: PepsiCo

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