Commentary

Investor Loeb Takes Aim At Nestle's Plodding Approach To Change

Daniel Loeb, the activist investor who has a roughly $3.5 billion stake in Nestlé, yesterday accused the Swiss-based company of a “muddled strategic approach” that does not adequately address changing consumer tastes. He called for it to be split into three divisions:  beverages, nutrition and grocery.

In a letter and 34-page presentation viewable on nestlenow.com, the head of the New York-based Third Point hedge fund also charged that Nestlé is “not moving fast enough to shed its underperforming and non-strategic businesses, as well as its stake in L’Oreal.” Loeb called for Nestlé to use proceeds from any sales to buy assets or buy back shares, write Lindsay Fortado and Ralph Atkins, who broke the story for Financial Times

“The hedgie, known for his poison pen, was at times scathing in his remarks,” observes Carleton English for the New York Post. Loeb argues that that Nestlé “has been losing market share to smaller, more nimble brands as food tastes have veered toward healthier options,” English continues.       

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“Nestle’s insular, complacent and bureaucratic organization is overly complex, lethargic, and misses too many trends,” Loeb writes in the letter, which is addressed to Nestlé CEO Mark Schneider, chairman Paul Bulcke, and its board of directors. 

Nestlé hired Schneider, a German who is the company's first non-Swiss CEO in nearly a century, in early 2017,” Reuter’s’ Svea Herbst-Bayliss points out. He succeeded Bulcke.

When Third Point announced its stake in Nestlé — about 1.5% of the shares — in June 2017, it said it “would push for a new strategy to help the company improve its sales and profitability,” Jethro Mullen reminds in CNN Money. 

Nestlé, which has a market value of around $235 billion, has since made some moves to address investors’ concerns. It set a new a profit target in September and agreed to offload more than 20 of its U.S. candy brands in January. But sales at its existing businesses grew just 2.4% in 2017, the slowest pace in more than two decades. Its share price has declined more than 8% so far this year,” Mullen continues.

“Loeb said the company hasn’t shown the necessary urgency since it released its own plan in September. Third Point also outlined its own strategy to improve Nestlé in the presentation that calls for, among other things, divesting certain frozen-food brands and other products that don’t fit with its broader strategy,” Scott Deveau writes in Bloomberg.

Deveau quotes Loeb: “We believe Nestlé should divest as much as 15% of sales, either through sales, spin-offs or other methods, to better align the portfolio around key categories. It is clear that the company’s non-core financial stake in L’Oreal should be sold, since the board remains unable to articulate a compelling long-term strategic rationale for its continued ownership.”

But Nestlé has, in fact, adopted many of Loeb’s proposals, the Wall Street Journal’s Brian Blackstone points out

“Last June, it launched a roughly $20 billion share buyback. It sold its U.S. confectionery business in January, and last year acquired Sweet Earth Foods, a maker of plant-based protein foods. In May, it bought the rights to offer Starbucks coffee and tea in grocery and retail stores, for more than $7 billion,” Blackstone writes.

That’s not enough, apparently. 

“We are concerned that Nestle does not fully appreciate the rapidly occurring shifts in consumer behavior that threaten its future,” Loeb stressed in his letter.

After breaking news of Loeb’s letter, the Financial Times’ Atkins and Scheherazade Daneshkhu this morning posted a long piece on Nestlé and its direction under Schneider.

“[Schneider’s] diagnosis is that there is no specific Nestlé problem. Rather, the entire food industry has ‘collectively’ overlooked a revolution in consumer behavior after ‘a history of 30, 40 years of almost uninterrupted success,’” Atkins and Daneshkhu write. “Many of these changes have been underway for the better part of a decade, but it’s only now that they really come to the surface and are plainly visible,” Schneider added.

“Consumers have moved away from traditional packaged foods, preferring less processing and more artisanal, fresher options. A plethora of smaller companies have sprung up to cater to them. New foods and beverages have become ‘almost a form of entertainment,’ Schneider says,” Atkins and Daneshkhu continue.

You might say the same about Third Point’s hard-hitting presentation.

 

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