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Pepsi to spinoff fast-food
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January 23, 1997: 10:26 a.m. ET
To raise stock prices, the company may give up its restaurant interests
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NEW YORK (CNNfn) -- PepsiCo Inc. may be getting back to basics: the company's board is scheduled to meet Thursday to discuss the spinoff of its $11 billion restaurant business, according to The Wall Street Journal.
News of the move -- which could boost the Purchase, N.Y.-based company's stock prices and create one of the nation's largest restaurant companies -- is expected as early as today, sources told the paper.
PepsiCo's fast-food business -- including Pizza Hut, Taco Bell and Kentucky Fried Chicken -- has been struggling in recent years, even as the restaurant industry has been plagued by increasing costs and heavy competition. Investors have long questioned the necessity of retaining the restaurant interests.
As Tom Pirko, president of consulting firm Bevmark LLC told The Journal during a recent interview, "I can't see any good reason for them to be in the restaurant business. It's an anchor pulling through the sand at the bottom of the ocean."
While the restaurant business commanded nearly 37 percent -- $11.3 billion - of PepsiCo's total sales in 1995, operations and accounting charges dragged actual profits down to $430 million.
Furthermore, Michael Branca, an analyst for Lehman Brothers, is forecasting a continued slide for the restaurants, speculating that fourth quarter same-store sales at Pizza Hut will plummet nearly 10 percent, and Taco Bell will post a 1 percent dip.
Some analysts also argue that the company's ownership of the fast-food chains may be particularly harmful for PepsiCo's fountain business -- that is, selling syrup to restaurants for their soda fountains. After all, during a pitch to a restaurant franchise or chain, competitor Coca-Cola's sales personnel can easily mention that purchasing PepsiCo syrup is akin to investing in the competition.
William Hackney, managing partner of Atlanta Capitol Management, holds 200,000 shares of PepsiCo stock and told the paper, "This is a company that's lost its focus in trying to go in too many directions. A lot of investors, us included, would like to see a restructuring."
Despite PepsiCo chairman Roger Enrico's past hesitance to step out of the restaurant arena, it seems that news of a corporate priority realignment may come as early as Thursday.
The company has declined to comment on the issue.
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