Published: Thu, June 29, 2017
Economy | By Melissa Porter

Activist Investor Pushes For Changes At Nestlé

Activist Investor Pushes For Changes At Nestlé

Swiss food and drink giant Nestle (Swiss: NESN.VX - news) has become the latest target for activist United States hedge fund Third Point, which has taken a one percent stake in the company and demanded major changes, including offloading its large holding in L'Oreal. While the exact size of the stake couldn't be confirmed, Nestle would be a formidable target with a market value of about US$264 billion.

One of America's most high profile investors has taken a 3.5 billion United States dollars (£2.74 billion) chunk out of Kit Kat owner Nestle as he calls for a shake-up of the firm.

Shares in Nestle were up 4.14 percent at 85.50 in Zurich at 11:38 am (0938 GMT), while in Paris L'Oreal was up 3.83 percent at 195.30 euros.

"Nestle has arguably been lackadaisical and complacent and underperformed its potential", Bernstein analysts said. "It might now be stirred into action by an external force".

Third Point urged Nestle to sell its 23 percent stake in cosmetics maker L'Oreal SA.

Contacted by AFP, L'Oreal declined to comment on the matter.

Nestle is the largest packaged goods player in an industry that has been struggling with an emerging markets slowdown, dropping prices across developed markets and consumers that demand healthier, fresher products.

Specific suggestions include selling its 23 percent stake L'Oreal, setting a net profit margin target of 18-20% by 2020, compared with 15.3% now, and increasing debt to buy back stock.

The current margin at Nestle is about 15%, while its biggest rival Unilever is more than 16%. Third Point called the investment in L'Oreal "superb" but said that it was time to sell.

"Previous management was not too open to listen to critics", he said.

Dan Loeb's Third Point hedge fund said over the weekend it now holds 40 million Nestle shares, amounting to 1.3% of the group. I think he's listening carefully to what investors are saying."Nestle's previous CEO, Paul Bulcke, is now its chairman.Nestle will report half-year results on July 27 and host an investor meeting on September 26".

"We are seeing more opportunities in Europe because of strong and improving economic data, a trend that will likely continue now that the French elections have passed without incident", Third Point wrote in the April 27 letter.

Third Point's stake was first reported by Bloomberg.

Vontobel analyst Jean-Philippe Bertschy said Third Point's suggestions echoed proposals made by other shareholders for years. He has already scrapped the company's long-standing sales target and said it might sell its US confectionery business, which includes brands such as Baby Ruth and Butterfinger.

At Nestle, Loeb wants to see divisions sold, partly to raise funds for capital distributions to shareholders, or units divested into publicly-traded companies.

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