Last updated: May 16, 2012 11:53 pm

Activist investor aims to add zest to Pepsi

In the world of activist investors there are gadflies, agitators, raiders and nudgers.

The challenge for Indra Nooyi, PepsiCo’s chief executive, is that she now faces Ralph Whitworth, the establishment face of shareholder activism.

Relational Investors, run by Mr Whitworth, disclosed in a regulatory filing on Tuesday that it had acquired nearly 9m Pepsi shares.

The stake represents about 0.6 per cent of the company, which has a market capitalisation of more than $100bn, but the move was enough to prompt a 2 per cent rise in the share price.

The San Diego-based investor is understood to think that Pepsi, a share price underperformer, would benefit by shedding its domestic beverage arm.

Under Ms Nooyi the company has built a world-class snack operation but shareholders have grown restless with attempts to focus on nutrition while fizzy drinks have seemed neglected, just as arch rival Coca-Cola has reorganised.

So Pepsi watchers welcomed the arrival of an investor prepared to spend years working on what he calls his “projects”.

“Ralph’s style is to do deep due diligence on a company’s operations and financials and then meet regularly with management to drive operational and sometimes structural improvement,” said Caroline Levy, Pepsi analyst for CLSA.

Mr Whitworth founded Relational in 1996 with David Batchelder, a fellow acolyte of Texas oilman T Boone Pickens.

He also comes with an institutional pedigree, having spent eight years as head of the United Shareholders Association, a Washington group that lobbied for shareholder rights.

The $200m of cash with which Mr Whitworth and Mr Batchelder started Relational came from Calpers, the California public pension fund and the country’s largest.

Since then they have undertaken about 100 different projects and secured some high-profile scalps. Most famous was that of Bob Nardelli in 2006, the controversial chief executive of Home Depot, then a struggling $80bn retailer.

In December 2005 Relational disclosed a small stake in the company and announced ideas for big changes.

By February Mr Nardelli was gone, an unwanted business was on the block and Mr Batchelder was on the board.

But Mr Whitworth has also shown he has the patience for a long fight. He became chairman of Waste Management in 1999 as the company recovered from an accounting crisis and allegations of insider trading by executives, overseeing a turnround until he stepped down in 2004.

He joined the board of Hewlett-Packard last year as the struggling computer maker tried to shore up investor support after strategic shifts, reversals and a revolving door on the chief executive’s office.

There he helped put a stop to plans to spin out the PC business. His involvement with the company, says a person familiar with his thinking, is likely to be the work of several years.

At PepsiCo he began engaging with the company in December. Executives at Pepsi might note the changes at industrial products maker ITT and L-3 Communications, both of which announced spin-offs last year following prodding from the patient but insistent Mr Whitworth.

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