Activist investor Daniel Loeb presses Nestlé to split, divest units
- Activist investor Daniel Loeb criticized Nestlé for not moving fast enough to improve the company's operations. In a letter, Loeb, who oversees hedge fund Third Point, pushed the water, ice cream and frozen food manufacturer to "become sharper in articulating its strategy, bolder in re‐shaping its portfolio, and faster in overhauling its organization."
- Loeb also said the Swiss company should split into three divisions: beverages, nutrition and groceries, and add an outsider to the board with knowledge of the food and beverage sector. The investor took a 1.25% stake in Nestlé a year ago valued at more than $3 billion dollars.
- “Nestlé’s management is not moving quickly enough to exit underperforming and non‐strategic businesses,” Loeb said in the letter to Nestlé management. The investor said the company has employed a “muddled strategic approach” that doesn’t do enough to address changes in food consumption patterns among shoppers. "This is a call for urgency — rather than incrementalism — to capitalize on fleeting opportunities and innovations that competitors will capture if Nestlé does not energize itself," he said.
While Loeb, at least publicly, has been patient with Nestlé since purchasing his stake, that patience appears to be running out.
It's apparent in his latest letter to the Swiss firm that he is ratcheting up his push for change with the hopes of getting Nestlé to act more swiftly amid a rapidly changing food landscape. Loeb has called for significant changes at Nestlé, including the split of the company, selling less profitable units and divesting its 23% stake in French cosmetics company L’Oréal.
In a statement, Nestlé hit back at Loeb, saying the company has taken "swift and decisive action" that is "delivering results." Nestlé said it has accelerated the repositioning of its portfolio to focus on high-growth, high-margin businesses, and delivered revenue growth in a challenging environment. It didn't reference Third Point, but noted that it is "implementing an accelerated long-term value creation strategy."
"Nestlé’s board and management take all shareholders’ perspectives seriously and welcome their continued input," the company said.
Nestlé has been active during the last year as Loeb has closely monitored the company's actions. The maker of Lean Cuisine, Hot Pockets, Nesquick and Dreyer's ice cream has announced plans to buyback about $21 billion worth of its shares, sold its U.S. confectionary business to Ferrero Group for $2.8 billion, paid $7.15 billion to Starbucks to sell the coffee chain's coffee beans and drinks in grocery stores and other outlets and took a majority stake in Blue Bottle Coffee. For Loeb, it's not enough.
While Nestlé “has taken some steps consistent with our suggestions, the modest pace and magnitude of these changes suggest that Nestlé feels satisfied with its position,” Loeb said in the four-page letter. “We are concerned that Nestlé does not fully appreciate the rapidly occurring shifts in consumer behavior that threaten its future.”
The challenges facing Nestlé are similar to those plaguing other Big Food companies. Consumers are moving away from processed food in favor of fresher, clean label items, while increasing their consumption of snacks. These challenges have forced companies to respond through internal innovation and by bulking up through acquisitions, oftentimes outside of the food and beverage space. Nestlé reportedly is in talks to purchase a majority stake in Canada’s Champion Petfoods for more than $2 billion, the Wall Street Journal reported Monday. Still, moves like this have not been enough to stem sluggish sales or reverse the slide in their share prices.
As a result, food companies have been ripe for activist influence, including the sale of Whole Foods to Amazon last year for $13.7 billion, and just last week, the purchase of Pinnacle Foods by Conagra Brands for close to $11 billion. Both deals were spurred on by the involvement of Jana Partners.
A split of Nestlé into three divisions as envisioned by Loeb could enable them to better focus on their core strengths without having to worry about the other units. In addition, a sale of its stake in L’Oréal would give Nestlé plenty of money to invest in faster-growth areas it has vowed to focus on like coffee, pet care, infant nutrition and bottled water. While Loeb clearly has thoughts on how Nestlé should run its business, the question remains whether Nestlé agrees that this is the best path forward. So far at least, that hasn't shown to be the case.
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