- Corvex Management, an activist fund overseen by Keith Meister, has built a stake worth approximately $400 million in French yogurt maker Danone, Bloomberg reported.
- The wire service, citing people familiar with the matter, said Corvex believes the stock is undervalued. Meister contends the company's stock will rise if management improves operations and positions the business to benefit from the health and wellness trend.
- As of now, Corvex doesn’t plan to publicly push for management changes or launch a proxy fight, Bloomberg said. It cited analysts who speculated that PepsiCo, Coca-Cola and Kraft Heinz could be logical acquirers of Danone.
Corvex's stake in Danone is less than 1% of the company's market cap of more than $54 billion, making Meister and his New York-based hedge fund a small shareholder. But that in no way diminishes the impact his involvement could have on a company best known for its popular yogurts.
While Bloomberg noted that Corvex doesn't plan on publicly pushing for change within the French company — at least for now — that stance could shift if Danone doesn't quickly make improvements to its operations or capitalize on the public's growing demand for healthier products.
Meister may be waiting to see what changes Danone makes or talking privately with the company before deciding whether to make his demands public. Danone was previously a target of activist investor Nelson Peltz in 2012 when he acquired a 1% stake — at the time the company had a market cap of about $37 billion — because he viewed its shares as undervalued and the organization in dire need of changes to its operations.
Danone is not the first European food company to attract the attention of an activist investor this year. In late June, Daniel Loeb’s Third Point hedge fund took its largest-ever initial bet on a public company, with a $3.5 billion stake in Nestle — about 1.25% of the company's shares. Shortly after Loeb outlined several changes the company could make, including improving margins and innovating in its core business, Nestle announced plans to buy back about $21 billion worth of its shares and focus its capital spending efforts on high-growth food and beverage categories.
While Danone may be the global leader in yogurt, it has been struggling to improve annual sales growth after disappointing performance from its Activia brand. With last year’s like-for-like sales growth the weakest since 1997, according to Bloomberg, the company was ripe for an investor like Meister.
The company recently acquired the fast-growing organic foods maker WhiteWave for $12.5 billion, giving it a premier position in soy and plant-based products increasingly popular with American consumers. Executives have estimated the acquisition would increase its full year like-for-like sales growth by an extra 0.5% to 1% and boost run-rate operating profits to $300 million by 2020. WhiteWave may play a key role in positioning the company for future growth, but it's unlikely to happen fast enough to please Meister.
Little is known about which companies, if any, could decide to make a bid for Danone.
Pepsico CEO Indra Nooyi said in April that she has considered buying another large company, but so far hasn’t found one that would deliver the long-term growth it needs to justify the purchase. Danone would enable PepsiCo to build upon its better-for-you platform, boost its presence in bottled water, and entrench it as a major player in the yogurt market — something the company failed in when it ended its much-touted joint venture with Theo Müller Group two years ago.
Kraft Heinz would be a logical player as the company has been widely rumored to be on the lookout for another target after its $143 billion acquisition attempt of Unilever in February failed when the companies couldn't agree on price. Coca-Cola also would be able to increase its presence in bottled water and food, while further reducing its dependence on the sugary sodas that are increasingly being shunned by consumers.
Ultimately, it's hard to predict what will happen with Danone, but odds are that it will need to move fast, or else Meister could decide it's time to ratchet up the pressure and force it to act.