Daniel Loeb's hedge fund firm acquires a $3.5B stake in Nestle

Billionaire activist investor Daniel Loeb’s Third Point hedge fund took its largest-ever initial bet on a public company, with a $3.5 billion stake in Nestle. Image: Nestle, Twitter

Billionaire activist investor Daniel Loeb’s Third Point hedge fund took its largest-ever initial bet on a public company, with a $3.5 billion stake in Nestle, or about 1.25% of the company's shares, according to The Wall Street Journal.

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The fact that consumer packaged goods companies are facing slowing growth leaves many players in the space vulnerable to activist intervention. Nestle is no different. As Third Point noted in the letter cited by The Wall Street Journal, Nestle has fallen behind its competitors who have done a better job adapting to changes in how people shop and competition from small, local brands. “Nestlé has remained stuck in its old ways,” the letter says.

“It is rare to find a business of Nestlé’s quality with so many avenues for improvement,” Third Point said in a letter to investors quoted by The Wall Street Journal. “Despite having arguably the best positioned portfolio in the consumer packaged goods industry, Nestlé shares have significantly underperformed most of their U.S. and European consumer staples peers on a three year, five year, and 10 year total shareholder return basis.”

A Nestle spokesperson said in an email to Food Dive that "we keep an open dialogue with all of our shareholders and we remain committed to executing our strategy and creating long-term shareholder value. Beyond that, we have no specific comment."

Loeb suggested in his letter that the company work to improve margins, take on debt to fund a buyback and sell its stake in L’Oréal. Some investors also have called on the Swiss-based company to sell its frozen-foods operations — which includes Lean Cuisine and Hot Pockets — as consumers flock to fresher options. It appears that Loeb is not calling for an outright sale of the company, but sees areas where Nestle can make improvements to overall operations to increase shareholder value.

Some of those initiatives are already taking place by Ulf Mark Schneider, Nestle's CEO who took over in January. This could signify that Schneider and Loeb agree on many of the changes that need to take place, but the investor is pushing for them to happen sooner.

“We are convinced that Mark Schneider has very ambitious plans for Nestle, including some or all of Third Point’s proposals,” Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, wrote in a note cited by Bloomberg. “Third Point’s move might be seen as hostile to Nestle, but could well be a great ally and accelerator for Mark Schneider in his strategic plan.”

Last week, Nestle announced it was the main investor in the $77 million round of new funding in Freshly, a meal kit startup. Nestle said would help the startup find new ways to deliver nutritious food to busy, on-the-go consumers. It also recently invested in an incubator program to support emerging food and agriculture startups. And earlier this month, Nestle said it is exploring strategic options for its U.S. confectionery business, including a potential sale, as the unit lags behind Hershey and Mars. 

It remains to be seen how active Loeb and Third Point will become in pushing for changes at Nestle. However, the investment is his largest-ever initial purchase in a publicly traded company, and the activist investor has a history of shaking up firms when he has gotten involved.

SOURCE Christopher Doering, Food Dive