Jim Cramer Suggests Merger as Possible Solution to PepsiCo's Troubles

Activist investor Elliott Management has announced a $4 billion stake in PepsiCo, causing the company's shares to lose 4%. Jim Cramer believes a merger could solve PepsiCo's problems, citing GLP-1 weight loss drugs as a factor in its decline. Cramer notes Pepsi's low yield and potential for growth, but suggests investors consider AI stocks with higher returns and lower risk.

Activist investor Elliott Management has amassed a $4 billion stake in PepsiCo, sparking a 4% drop in the company's share price. The move has brought renewed attention to PepsiCo's strategic direction, particularly following Jim Cramer's suggestion that a merger could address the company's challenges. Cramer cited the declining performance of Pepsi-Cola and the potential for growth in AI stocks as factors influencing his views.

PepsiCo's Chief Executive, Ramon Laguarta, has been at the helm since 2018, overseeing a portfolio that includes soda, chips, ice tea, and tortillas. However, the company has faced pressure to slim down its brand portfolio and improve its share price. Elliott Management, known for its past activist campaigns at companies like Starbucks and Southwest Airlines, has called for PepsiCo to scrutinize its beverage and food brands and drop slow sellers. The investment firm has also proposed revamping the company's bottling network and taking other steps to enhance shareholder value PepsiCo CEO’s Tall Order: Win Over Investor Calling for Strategy Reset^[1].

PepsiCo's beverage business has shown signs of improvement in recent months, with more consumers gravitating toward Pepsi Zero Sugar and the company investing in its "Food Deserves Pepsi" marketing campaign. However, the company's food business has flagged recently, with sales growth weakening in every quarter since 2022. Consumers' tightening purse strings and increased health consciousness have contributed to this decline PepsiCo CEO’s Tall Order: Win Over Investor Calling for Strategy Reset^[1].

Elliott Management has suggested that PepsiCo cut costs to fit the weakening consumer environment and divest underperforming assets. Laguarta has indicated that the company has prioritized reaching price-sensitive consumers and has experimented with smaller pack sizes and lower-priced options. The company has also studied its food-business cost structure and has taken steps to reduce expenses, including closing two food plants PepsiCo CEO’s Tall Order: Win Over Investor Calling for Strategy Reset^[1].

PepsiCo has not commented on Elliott's proposal to unload its bottling operations. Deutsche Bank analyst Steve Powers wrote recently that PepsiCo's North American beverage portfolio is "overly complex and lacks consistent focus," but added that refranchising might not be a straightaway solution. He suggested that better performance and profit in the business might need to come first PepsiCo CEO’s Tall Order: Win Over Investor Calling for Strategy Reset^[1].

Jim Cramer believes that a merger could solve PepsiCo's problems, citing GLP-1 weight loss drugs as a factor in its decline. Cramer notes Pepsi's low yield and potential for growth, but suggests investors consider AI stocks with higher returns and lower risk.