Third Point Wants Change at Nestle

  • Third Point Wants Change at Nestle

Third Point Wants Change at Nestle

Nestle (NESN.S) is under pressure from USA activist shareholder Third Point, which has taken a US$3.5 billion stake in the food maker and is pushing Europe's largest company to improve margins, buy back shares and get rid of non-core businesses. 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.

According to Sanaford Bernstein analyst Andrew Wood, ongoing "minor" shifts in Nestle's portfolio should be expected. It might be spurred into action by this external force.

In a letter, Third Point outlined several changes Nestle could make, including improving margins, innovating in its core business and selling noncore assets such as its 23% stake in French cosmetics company L'Oréal.

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

"Having L'Oreal in the portfolio is not strategic and shareholders should be free to choose whether they want to invest in Nestle or some combination of Nestle and L'Oreal", Third Point said.

In February, Schneider scrapped Nestle's long-standing sales target, which it had missed for four straight years.

Third Point hailed the appointment of Ulf Mark Schneider at the head of Nestle in January and urged him to take bold steps to tackle the "staid culture and tendency towards incrementalism that has typified the company?s prior leadership".

The hedge fund also said that Nestle should set a formal margin target of 18 percent to 20 percent by 2020, from about 15 percent in 2016.

Previously, Third Point has focused much of its recent activism in Japan, where investments have included Seven & I Holdings Co. and Sony Corp.

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

Third Point disclosed the Nestle position, representing 1.3 per cent of the company, in a letter to its investors posted on its website. 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".

Analysts at Jefferies agree that Third Point makes some good points about Nestle, but execution would be hard. It said earlier this month that it might sell its $900 million-a-year USA confectionery business in the Swiss food group's latest effort to improve the health profile of its sprawling portfolio. Analysts also speculate it could sell its USA frozen food business.

Activist investors often retain operational experts to advise on investment campaigns, with an eye to nominating them for a board seat in the future - a role Third Point may have in mind for Bennink.