Nestle targeted by Dan Loeb in biggest-ever bet

NEW YORK: Dan Loeb has amassed a US$3.5bil stake in Nestle SA, targeting Europe’s largest company in the biggest bet of his two-decade career as an activist investor.

Third Point, Loeb’s hedge fund, owns about 40 million shares in the Vevey, Switzerland-based company, according to an investor letter released Sunday after Bloomberg first reported the position. The fund encouraged Nestle to sell its stake in cosmetics maker L’Oreal SA, increase leverage for share buybacks and adopt a formal profitability target, among other suggestions.

“It is rare to find a business of Nestle’s quality with so many avenues for improvement,” wrote Third Point, whose stake includes options and is held in part through a special purpose vehicle.

The investment ratchets up pressure on Nestle chief executive officer Mark Schneider after 2016 sales growth fell to the slowest pace in at least a decade and the stock price lagged behind other consumer giants in recent years.

For Loeb, Nestle represents not only his single largest investment since Third Point was founded in 1995, but also the biggest company he’s ever targeted to improve shareholder returns.

A representative for Nestle, which had a market capitalisa- tion equivalent to US$263bil at the close of European trading, was unable to comment.

Schneider, the first Nestle outsider to run the world’s biggest food producer in nearly a century, has already started shifting the company’s priorities toward healthier foods and faster-growing businesses since taking the helm on Jan 1. Nestle said this month it may sell its US chocolate and candy unit, which includes brands such as Butterfinger and Baby Ruth.

While Third Point applauded Nestle’s plans for the confectionery business and called Schneider a high-caliber executive with an impressive track record, the hedge fund urged him to articulate a “bold” action plan that addresses Nestle’s “staid culture and tendency towards incrementalism.”

“Ultimately, they have been very slow to respond to changes in the market,” James Santo, a senior vice-president at asset manager Northern Trust Corp in Sydney, said by phone yesterday. “That’s clearly why we’re seeing the pressure coming from the shareholders now.”

Nestle, which makes everything from Nespresso coffee to Gerber baby food, should conduct a review of its more than 2,000 brands and reduce exposure to underperformers, Third Point said.