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Non-Tech : PEP -- Time to buy?
PEP 142.92-0.5%Nov 4 3:59 PM EST
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To: Gary L Schultz who wrote (219)8/19/1997 7:47:00 PM
From: Gary L Schultz   of 392
 
Larry,

You might well be correct in your predictions. Here's what I don't understand: Take a company that is producing 30 billion a year in revenues, which is composed of two major parts - the snack and soda group and the resturant business. There is a spin-off of the resturant biz - which was producing 10 billion of that thirty billion dollars. The market currently values the combined company at 35 a share. Question: How much is the resturant valued at after the spin-off? How much is the soda/snack biz worth afterwards? Is the future sum less than the present combined value?

I cannot see PEP soaring after the spinoff - it is making 10 billion less in revenue than it currently does. I cannot see the resturant biz doing that well, when a lot of the debt was shifted to it.

Granted, this is the best strategy for the long term for PEP and YUM. Short term, we could see the combined value of our share less than what it is today.

Don't take this wrong. I've decided to stick with both stocks for the LT - or until it tells me otherwise. I just don't understand the arithmetic. The market might place extra value on both stocks thinking they both are free to generate new business - then again - it might not. Interesting to say the least.

Regards

Gary
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