Loeb's Third Point targets 'staid' Nestle for change

Danny Woods
June 26, 2017

Activist investor Dan Loeb's pressure on Nestle SA to sell its stake in L'Oreal SA could lead to the unwinding of another long-standing investment: L'Oreal's 10.4 billion-euro ($11.6 billion) holding in French drugmaker Sanofi.

Loeb has recently bought a stake in the world's largest packaged foods maker as he seeks strategic changes in the company, Bloomberg said.

Third Point said in its letter, "We feel strongly that in order to succeed, Dr. Schneider will need to articulate a decisive and bold action plan that addresses the staid culture and tendency towards incrementalism that has typified the company's prior leadership and resulted in its long-term underperformance".

Nestle has faced questions from equity analysts in recent weeks about whether it will announce a target to improve margins and Third Point argued the company should set a formal margin target of 18-20% by 2020.

Third Point, better known for targeting US and Japanese companies, has recently been drawn to European investment opportunities, according to the firm's first quarter investor letter. It said in the letter that it has already had productive conversations with Nestle management.

Should the sales by Nestle and L'Oreal come to pass, they would be testament to the growing power of activist investors in Europe: The region's big companies may succumb to market pressure and unwind decisions made decades ago for political or strategic reasons.

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A L'Oreal spokeswoman declined to comment.

Mark Schneider, the company's new chief executive, has been trying to reignite growth at the company since joining Nestle in January from German healthcare group Fresenius.

Jan Bennink, former CEO of baby food maker Royal Numico, is advising Third Point on its Nestle investment and has also invested personally alongside the fund, Third Point said. Analysts also speculate it could sell its US frozen food business. Nestle said this month it may sell its USA candies unit, which includes brands such as Butterfinger and BabyRuth.

Third Point also invested in German utility operator E.On, which spun off its generation assets into Uniper past year, arguing the remaining regulated grids and renewables business "is now misunderstood by the market and attractively priced".

Analysts at Jefferies agree that Third Point makes some good points about Nestle, but execution would be hard.

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