Tuesday, October 4, 2011

PepsiCo Shares Could Gain 49% in Split

PepsiCo Inc. shareholders could be looking at a 49% gain if CEO Indra Nooyi decides to split the soft drinks business from the company's snack foods business.

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PepsiCo, the world's largest snack-foods maker and second-largest soda producer, has seen its market value decline by almost $11 billion in the last year, its stock falling 9.7% to $60.39. Meanwhile, competitor Coca-Cola Co. has watched its shares advance 22%, while Kraft , which last month announced that it would split its grocery business from its global snacks business, has climbed 9.3%. Edward Jones & Co. analysts say that splitting PepsiCo's soda and Gatorade unit from the unit responsible for snack foods like Doritos and Lay's chips may value the combined entity at $90 a share.

PepsiCo would be in good company — Tyco (TYCO) disclosed plans this week to split into three separate companies, while McGraw-Hill said it will separate its education business from its financial ratings business. Dr. Pepper Snapple Group Inc. has seen its shares soar 52% since its spinoff in 2008. You go through these cycles where you build empires and you break them apart. We're going through a cycle where the investment bankers are convincing companies smaller is better and the sum of the parts is worth more than the whole," said Jack Russo, an analyst for Edward Jones in St. Louis.


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