- Nestle plans to buyback about $21 billion worth of its shares and focus its capital spending efforts on high-growth food and beverage categories such as coffee, pet care, infant nutrition and bottled water, the consumer products manufacturer said in a statement.
- Nestle wasn’t expected to deliver an update to shareholders until September. However, its plans were fast-tracked following investor pressure after billionaire activist investor Daniel Loeb’s Third Point hedge fund purchased 1.25% of the company's shares and issued a letter on changes the firm should make to its business, The Wall Street Journal reported.
- In a statement, Nestle said the "company will continue to adjust its portfolio in line with its strategy and growth objectives." It also said it was open to certain strategic acquisitions, such as those targeting specific categories and geographies, delivering attractive returns and building on the company’s leadership position in fast-growing food and beverage categories. In addition, Nestle expressed an interest in growth opportunities available in the consumer healthcare space.
Nestle's announcement to buyback shares and sharpen its capital spending focus came two days after Third Point outlined several changes Nestle could make, including improving margins, innovating its core business and selling noncore assets such as its 23% stake in French cosmetics company L’Oréal. It's no coincidence that the maker of Dreyer's ice cream, Lean Cuisine frozen meals and Hot Pockets, took an aggressive, proactive approach — a move that appears to have come three months ahead of schedule — to show investors it's focusing on high-growth areas and in divisions where it is already a market leader.
In a statement, the 112-year old company vowed to look for ways to improve margins, but warned that such improvements would not take place if they undermined "the company’s performance in attractive long-term growth categories." Nestle also said most of the $21 billion buyback, which is expected to commence on July 4, would take place in 2019 and 2020 "to allow the pursuit of value-creating acquisition opportunities." The share repurchase could be modified should a "sizeable" deal take place.
Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, told Bloomberg that Nestle likely had been working on the plan before Loeb disclosed his investment over the weekend.
“Nestle isn’t going to do quick reactions on shareholder demands," he told the wire service. "This move is an example of Mark Schneider having come in and carefully analyzing the company since the beginning of the year. It’s just the tip of the iceberg, we’re going to see much more."
Ulf Mark Schneider, Nestle's new CEO, has been actively looking for ways to tighten the company's overall focus since he took over in January. Last week, Nestle announced it was the main investor in the $77 million round of new funding in Freshly, a meal kit startup. It also said this month it is exploring strategic options for its U.S. confectionery business, whose products including Nestle Crunch and Butterfinger, where the division lags behind market leaders Hershey and Mars.
The challenges Nestle is facing are common throughout the food industry, where businesses are facing slowing growth as consumers flee processed foods in favor of fresher items made with all-natural ingredients. As the involvement by Loeb and his hedge fund show, outside influence can force companies to overhaul their operations much faster than they originally intended. Even in the case of Unilever, which rejected Kraft Heinz's $143 billion takeover bid in February, the company put its margarine and spreads business up for sale with the operation expected to fetch as much as $8.5 billion.
With headwinds unlikely to abate anytime soon, food and beverage companies are likely to continue to feel pressure to improve their businesses. For firms that are slow or unable to respond, it's a good bet another activist investor or large company is closely watching their progress and will be eager to help them out.