The Purchase, N.Y., company, which owns Frito-Lay, Quaker Oats and Gatorade, issued a short statement Friday after the Telegraph of London said activist investor Nelson Peltz could push it to merge with Mondelez International Inc., which makes Cadbury and other Nabisco brands, in addition to the famous cream-filled cookies.
The report cited unnamed sources saying Peltz, who is known for making big investments then forcing change, has been building stakes in the two companies in recent weeks.
PepsiCo has long been the subject of speculation that it would spin off its underperforming beverage business. CEO Indra Nooyi tried to squash such talks last year with a "Power of One" marketing campaign that featured the company's sodas alongside its chips. But PepsiCo has nevertheless been reviewing options to restructure its North American beverage business and recently said it would provide more thoughts on the matter early next year.
In particular, the company said it wanted to see how a new sweetener system it's developing might help improve its soda business.
"We certainly wouldn't want to make a change in the business structure while there's still opportunities to unlock value that might be better unlocked while PepsiCo still owns the business," Chief Financial Officer Hugh Johnston said in a call with reporters in February.
Consumer Edge Research CEO Bill Pecoriello noted that the global snack business is much more attractive to PepsiCo than the soda business, which has been declining for years in developed markets such as the U.S.
But if PepsiCo were to spin off its beverage business, he said it would likely want to make a major acquisition to remain as big as it is today.
In fact, Consumer Edge issued a report just this week detailing how a merged PepsiCo and Mondelez would work in markets around the world. The report found that the combined company would benefit because there are many regions where one of the companies has a big presence and the other doesn't.
In places such as the U.S. where both do big business, Pecoriello said consolidating distribution networks could result in $3.4 billion in cost savings. He also noted that PepsiCo spinning off its beverage business wouldn't necessarily negate the "Power of One" strategy because independent companies could maintain marketing partnerships. For instance, PepsiCo still provides beverages for the fast-food chains owned by Yum Brands Inc., which it spun off in 1997.
Still, the deal would present plenty of challenges.
JP Morgan analyst Ken Goldman noted that Mondelez has an array of products that could be too complicated "to appeal to a larger suitor." He also noted that the size of the company could raise antitrust issues.
At the same time, Goldman said he wouldn't take any potential interest by Peltz lightly.
In a short statement, PepsiCo said that it doesn't comment on market rumor or speculation.
"As we've said before, we are making strong progress in our strategy to deliver long-term growth and create shareholder value," it said.
Mondelez International Inc., which split from Kraft Foods Group Inc. last year, also said it was satisfied with its portfolio as it stands.
A representative for Peltz's Trian Fund Management declined to comment.