Third Point presses for 'bold action' at Nestle

Company is under pressure to improve margins, buy-back shares, get rid of non- core businesses

Nestle is under pressure from US activist shareholder Third Point, which has taken a $3.5 billion stake in the food maker and is pushing Europe’s largest company to improve margins, buy back shares and get rid of non-core businesses.

Nestle shares jumped as much as 4.8 per cent on Monday, touching a record high as investors hoped that Third Point’s stake, made public on Sunday night, will accelerate change at the group based on the shores of Lake Geneva which has a reputation for being slow-moving and insular.

“Nestle has arguably been lackadaisical and complacent and underperformed its potential,” Bernstein analysts said. “It might now be stirred into action by an external force.” The stake is the largest ever taken by the hedge fund, which is run by American investor Dan Loeb and has pressed for change at US internet firm Yahoo! and Japan’s Sony.

The global packaged goods industry is grappling with slowing emerging markets, pressure on prices and a consumer shift away from traditional brands towards healthier, fresher fare. Nestle has missed its longterm sales target for four successive years.

The company, which makes coffee, candy, pet food, bottled water and prepared meals, said it was committed to its strategy under new Chief Executive Mark Schneider.

“As always, we keep an open dialogue with all of our shareholders and we remain committed to executing our strategy and creating long-term shareholder value,” a Nestle spokesman said. “Beyond that, we have no specific comment.” Other activist shareholders, such as Trian Partners and Pershing Square, have made bets in the sector with mixed success.

Before Monday’s share jump, Nestle had a market value of $263 billion, making it the largest traded company in Europe.The push by Third Point cranks up pressure on Schneider, who joined in January just before the sector was rocked by Kraft Heinz’s abortive $143 billion approach for Unilever .

Third Point disclosed the Nestle position, representing 1.3 per cent of the company, in a letter to its investors posted on its website. It argued that the maker of Nescafe coffee and Perrier water should sell its 23 per cent stake in French cosmetics firm L’Oreal, a stake which was worth about $27 billion on Friday.

L’Oreal shares rose 3.8 per cent on Monday. Schneider has been looking at ways to reignite growth since joining from German healthcare group Fresenius.

The first CEO from outside the company in nearly a century, his appointment was seen as an acknowledgement that Nestle needed new thinking. He has already scrapped the company’s long-standing sales target and said it might sell its US confectionery business, which includes brands such as Baby Ruth and Butterfinger.