Shares in Nestlé jumped by 4% in early trading to CHF85.5 although shares in Third Point Offshore, a London-listed investment trust that acts as a feeder fund for Loeb’s US-based Third Point investment vehicle, were up by less than 1% to £14.75.
Russ Mould, investment director at AJ Bell, comments:
“In a letter to investors released on Third Point’s website on Sunday, Loeb declares he has a stake worth $3.5 billion in Nestlé, via shares and options. He asserts that the Swiss giant has strong brands and excellent market positions in profitable product areas such as infant formula, bottled water and coffee, as well as emerging markets, but that its share price and operational performance does not compare well with leading global peers such as France’s Danone, the UK’s Reckitt Benckiser and Anglo-Dutch combine Unilever.
Third Point’s four-point plan
Loeb welcomes the arrival of a new chief executive officer, Dr. Ulf Mark Schneider, and argues this is a perfect time for him to address what he sees as Nestlé’s shortcomings.
The check-list of proposals made by Loeb and his colleagues looks like a classic “activist” programme:
Seek productivity gains to drive operating margins from 15% to above 20%
Overhaul its brand portfolio by selling off some assets, such as the US confectionary operations (already planned by Nestlé) and buying others
Sell its 29% stake in French cosmetics giant L’Oreal
Return cash to shareholders via share buybacks, funded by asset sales and also fresh borrowing
Loeb does however always take pains to say he is not an “activist”, but rather an event-driven investor, who spots value opportunities where a change in corporate strategy or management, improvement in operational performance or even a bid can unlock that value.
That said, Loeb does have a good record of working to ensure an event happens through agitating for change – recent high-profile campaigns include Dow Chemical and Sotheby’s – while portfolio picks Time Warner and Monsanto are the subject of takeover bids from AT&T and Bayer respectively.
The ball is now in the court of Dr. Schneider and Nestlé. Loeb’s approach will depend upon whether the Swiss company’s management team choose to engage with him, listen and even implement some of his suggestions – or not. If not, Loeb’s record suggests he will not give in easily and will continue to press for improved performance.
Nestlé in the UK
Nestle’s corporate headquarters in the UK is located near Gatwick, although its global research centre for confectionary business is based in York, original home of Rowntree’s, which is acquired in 1998 after a bid battle with Swiss rival Jacob Suchard.
Nestlé’s British factories are to be found in Carlisle, Newcastle, Halifax, Girvan in Scotland, and Tutbury in Staffordshire, as well as York, for confectionary, while pet care sites include Liverpool, Wisbech and Sudbury in Suffolk and water is based in Buxton, Derbyshire.
Whether management and staff at any of these sites, or the Gatwick HQ, are affected by Third Point’s call for greater efficiency and asset sales remains to be seen and will again initially depend on how Nestlé’s board in Vevey, near Geneva, responds to Third Point’s list of proposals.”