11:25 AM EDT, 09/04/2025 (MT Newswires) -- Activist investor Elliott Investment Management built a $4 billion stake in PepsiCo ( PEP ) and sent an accompanying letter to its board with what an analyst described as straightforward recommendations on how to turn the company around.

The beverage and snack giant has seen its stock price fall about 18% over the last two years amid a deceleration in organic revenue growth.

Elliott's stake disclosure comes nearly a decade after activist investor Nelson Peltz failed in his attempt to break up Pepsi. This time, Elliott isn't advocating such drastic action.

"What Elliott proposed, I call it 'activist-light,'" Kenneth Shea, senior analyst of beverages, tobacco and cannabis for Bloomberg Intelligence, said in an interview with MT Newswires. "It's really the friendliest activist approach that I've ever seen."

Rather than calling for a breakup, Elliott proposed five changes that could help Pepsi generate mid-single-digit organic revenue growth with some margin gains that, in turn, will propel it to its target of high-single-digit EPS, he said.

Specifically, the activist investor called for the company to review PepsiCo Beverages North America's, or PBNA's, structure and portfolio, and realign PepsiCo Foods North America's, or PFNA's, asset base and portfolio. It also urged the company to invest in profitable growth, communicate a clear action plan with new targets and enhance accountability.

"(W)e see Elliott's involvement as constructive insofar as it forces ongoing dialogue around such key topics and instills a sense of urgency among (Pepsi) management," Deutsche Bank Research analysts said Wednesday in a note to clients. "Moreover, we agree with many of Elliott's core observations and suggested priorities."

Under its first recommendation, Elliott urged Pepsi to consider refranchising its "operationally intensive" bottling network, as its rival Coca-Cola (KO) has done and as Pepsi has done in the past, "to allow each business to focus on its core competencies."

"The crown jewel of the beverage business is selling concentration syrups to (bottlers) and letting them do the ugly business of mixing it and delivering it," Shea said.

Around 2010, both Pepsi and Coca-Cola opted to reacquire their respective bottling operations in order to ensure operational consistency throughout the supply chain.

"Coke brought them back in, consolidated, changed the management teams, gave them different marching orders and bought minority stakes to give them seats on boards," Shea said. "They said, 'after we clean it up, we're going to (divest again),' and they did (in 2017)."

Pepsi did the same thing, but, unlike Coke, has chosen to keep the bottling operations in-house despite higher costs in order to ensure that bottlers' interests remain aligned with its own, he said.

"The Elliott presentation did a pretty good job of saying, 'Coke and Pepsi once owned these things, let's look at the return on sales of beverage operations from that time,' and it's pretty compelling when you see Coke has done so much better," Shea said.

Pepsi, once Coke's top rival, has fallen to fourth in US sales volume, behind Keurig Dr Pepper's ( KDP ) Dr Pepper and Coca-Cola's Sprite, The Wall Street Journal reported Tuesday, citing data from Beverage Digest. Coke ranked No. 1.

The Deutsche Bank analysts cautioned that they don't see refranchising as a panacea.

"We are not convinced refranchising is a straightaway solution, as doing so today risks either establishing stand-alone bottlers that are subscale and suboptimally profitable vs. competition, and/or materially diluting current (Pepsi) shareholders," the analysts said. "As a result, better operational performance and profitability in PBNA may need to come before any realistic conversation on large-scale refranchising."

Elliott's $4 billion stake represents just 2% of Pepsi's market value, which may have played a role in its "non-threatening, non-extreme approach" to Pepsi, Shea said. The beverage and food giant's top holders are passive funds like Vanguard, BlackRock ( BLK ) and State Street (STT) that tend to avoid heated proxy fights.

"Elliott may be trying to have a balancing act where it's trying to be tough on PepsiCo ( PEP ), but at the same time, it wants their support," he said. "They'd love to hear Vanguard or State Street say, 'We agree with Elliott.' That'd get PepsiCo ( PEP ) to move."

The activist investor's recommendations, if implemented, could raise Pepsi's operational efficiency, but they don't go far enough, Shea said.

"Our long-held call for a split of PepsiCo's ( PEP ) global foods and beverages businesses could deliver greater value by sharpening its strategy and speeding up international growth," he said in a Thursday note to clients. "With a valuation discount to peers, a spinoff may be the more compelling path."

Price: 147.00, Change: -1.64, Percent Change: -1.11