Pepsi soft drinks are displayed at a convenience store in San Francisco, California.
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PepsiCo shares popped Tuesday after Elliott Investment Management took a significant stake as the activist investor sees a “rare” and “historic” opportunity for a turnaround in the iconic soft drink giant.
Shares of PepsiCo climbed as much as 5% in morning trading before cutting gains to 2.4%. The stock was down about 2% this year before Tuesday’s pop, significantly lagging the broader market as well as its rival Coca-Cola.
The Paul Singer-founded Elliott’s bet in Pepsi is worth $4 billion, becoming the consumer giant’s top five active investors excluding index funds, according to FactSet. The activist investor sent a presentation and letter to Pepsi’s board of directors Tuesday, detailing a clear agenda focused on restoring business momentum.
“While unfortunate, this disappointing trajectory has created a historic opportunity: With the right mindset and an appropriately ambitious turnaround plan, PepsiCo today represents a rare chance to revitalize a leading global enterprise and unlock significant shareholder value,” Elliott wrote in its letter.
Elliott believes PepsiCo shares can see at least a 50% upside if the company is reinvigorated via its ideas. The activist said Pepsi should evaluate the potential refranchising of its bottling network, while streamlining its portfolio by divesting non-core and underperforming assets.
The Wall Street Journal first reported Elliott’s new stake earlier Tuesday.
“Elliott’s goals at PepsiCo are straightforward: help the Company sharpen focus, drive innovation, become more efficient and unlock the value that its leading brands, unmatched scale and worldclass employees deserve. The path back to winning is clear and achievable,” Elliott said.
Pepsi has been cutting costs and trying to improve its profit margins. The company closed two manufacturing plants for its North American food business during the quarter. Pepsi said it is trying to make its transportation and logistics more efficient. The company is also evaluating how it spends its marketing dollars to make sure it is getting the best return on its investment.
In July, Pepsi reported quarterly earnings and revenue that topped analysts’ expectations, as the company projected that weak North American demand will rebound as strategy changes take hold.
“PepsiCo maintains an active and productive dialogue with our shareholders and values constructive input on delivering long-term shareholder value,” Pepsi said in a statement. “We note Elliott Investment Management’s disclosure of its presentation and will review its perspectives within the context of our strategy to drive sustainable growth.”
Elliott, with over $70 billion in assets under management, has a long history of activism that has at times yielded strong returns for investors. It’s a large holder of Phillips 66 and Southwest Airlines and has been driving changes at those two companies.
The firm was also famously involved in a 15-year legal battle against the government of Argentina over defaulted bonds. Elliott ended up getting a settlement payment of $2.4 billion, representing a massive return on its initial investment.