Economy

Nestle Targeted By Activist Third Point

Nestle Targeted By Activist Third Point”

Third Point, the hedge fund run by activist investor Dan Loeb, on June 25 disclosed an approximately $3.5 billion stake in Nestle and is urging the Swiss maker of Kit Kat bars and Poland Spring water to sell its 23 percent stake in cosmetics company L'Oreal and to borrow more money to buy back shares.

Third Point's stake was originally reported by Bloomberg.

In a letter to the investment group's shareholders, Third Point argued Nestle requires "a decisive and bold action plan" that addresses the "staid culture" and "tendency towards incrementalism" it says has marked strategy at the world's largest food maker. 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.

Nestle and Third Point were not immediately available for comment.

Mr Loeb is calling on Nestlé to sell its 23pc stake in French cosmetics company L'Oreal to increase its firepower for share buybacks and to ramp up its profitability targets to deliver 18pc to 20pc profit margins by 2020.

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Chocolate makers especially are grappling with weak US consumption as Americans increasingly turn their backs on sugar. Recently, Nestle said it would look to sell its $900 million-a-year USA confectionery business.

Consumer companies have become popular targets for activist shareholders. So far, activist investors have predominantly targeted US companies, putting pressure on them to boost margins. In 2015, billionaire hedge fund manager Bill Ackman amassed a $5.6 billion stake in snack giant Mondelez International Inc. and called for management to improve the company's performance, leading to cost cuts. It also recommended it more than double its debt load, as well as sell the L'Oreal stake, in order to generate the capital to buy back stock. The hedge fund also said in April it had invested in UniCredit SpA, the second largest listed bank in Italy which has a significant presence in Germany and Austria, drawn by its low valuation and €13 billion rights issue in March.

Nestle stock has gained over 55% in the last five years. The firm has also focused much of its recent activism in Japan, where investments have included Seven & i Holdings Co. and Sony Corp.

"Nestle has arguably been lackadaisical and complacent and underperformed its potential", Bernstein analysts said. "This is already happening...and we expect that management will indicate it will likely to continue", he wrote in an investor note.



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