PepsiCo Inc. said Thursday that it will spin off its $11-billion restaurant division as it refocuses its corporate firepower on a long-standing rivalry with beverage industry leader Coca-Cola Co.
The Purchase, N.Y.-based giant said it will turn over its Taco Bell, KFC and Pizza Hut chains to PepsiCo shareholders as a publicly traded company, most likely by year-end. Shareholders will receive stock in the new company based upon their current holdings in PepsiCo.
The announcement came after the market closed, but rumors of the deal sparked intense trading earlier Thursday. PepsiCo was the most-actively traded stock on the New York Stock Exchange. Its shares climbed $3.50 to close at $35.50, just below its record high of $35.875.
PepsiCo Chairman and Chief Executive Roger Enrico said the spinoff would "dramatically sharpen PepsiCo's focus" as it battles with Coke worldwide.
"Our restaurant business has tremendous financial strength and a very bright future," Enrico said. "However . . . we believe all our businesses can better flourish with two separate and distinct managements and corporate structures."
Enrico's move will delight disgruntled shareholders who have been demanding that the giant company shed the profitable but inconsistent restaurant division and concentrate on its core beverage and Frito-Lay snack operations.
"Right now, PepsiCo has to attack the world, to continue to open [countries such as] China," said Tom Pirko, president of Bevmark LLC, a New York-based consulting firm. "It shouldn't be worrying how to survive a bloody profit crunch in the pizza business."
When measured by sales, PepsiCo's 29,000 restaurants would form the world's second-largest restaurant company behind McDonald's. But the division has been struggling to generate steady profit. During the last year, for example, KFC performed well while profit at Pizza Hut and Irvine-based Taco Bell stalled.
With the spinoff, Enrico has agreed to concentrate on the $10.5-billion beverage line and the $13.2-billion snack business that have formed the core of PepsiCo since the 1930s. Analysts said the shift in focus should benefit shareholders.
"Coke is successful because of its phenomenal concentration on its core business," Pirko said. "And Pepsi has got to be in the same mode. . . . It's got to focus on its beverage and snack units."
PepsiCo did not offer terms of the proposed spinoff. But Wall Street's reaction before the announcement showed that investors are embracing the long-rumored spinoff.
