Activist Third Point takes $3.5 billion stake in Nestlé

8 years ago - Published in Finance, Fundamental Analysis

Billionaire activist investor Daniel Loeb's Third Point LLC hedge fund has taken $3.5 billion stake in Nestlé. The stake amounts to about 1.25% of swiss company's shares.

The hedge fund is proposing Nestlé set a formal profit margin target of 18-20 per cent by 2020, boost its debt to buy back shares, put up for sale non-core products in its portfolio, and sell its 23 per cent stake in cosmetic maker L’Oréal, a stake with a market value of about $27 billion. Nestle’s current operating margin is about 15 per cent. Nestlé did not respond immediately to requests for comment.

"Despite having arguably the best positioned portfolio in the consumer packaged goods industry, Nestle shares have significantly underperformed most of their US and European consumer staples," Third Point wrote in a letter to investors on Sunday night."It is rare to find a business of Nestle's quality with so many avenues for improvement."

Nestlé, whose products include baby milk, pet food, Nespresso coffee and KitKat chocolate bars, is under pressure to boost profitability as the global food industry reacts to pressures unleashed by Kraft Heinz’s failed $143bn takeover approach this year for Anglo-Dutch group Unilever.

Third Point said Nestlé has "fallen behind over the past decade," and that while competitors have adapted to changes in how people shop and to more competition from small, local brands, "Nestlé has remained stuck in its old ways."

The stake is Third Point's largest initial bet in its more than 20-year history and ranks among the largest in activism history as well. Mr. Loeb played a big role in shaking up Yahoo Inc. as an activist shareholder and board member some years ago. He is also known for fiery-worded letters to executives and fights at companies like Sotheby's, though in recent years he has tamed his public image and looked to work more quietly with companies. 

Third Point said it had hired Jan Bennink, a former executive chairman of Sara Lee, to advise the hedge fund on its investment.