Nestle chief’s vision shrouded by death at L’Oreal

NEW YORK: As new Nestle SA chief executive officer Mark Schneider prepares to lay out his strategic vision for the Swiss food giant, his plans will be overshadowed by a changing of the guard at another European consumer-goods giant – L’Oreal SA of France.

Nestle owns 23% of the French cosmetics maker, and the death of heiress Liliane Bettencourt raises questions about the future of the investment.

Hedge fund chief Dan Loeb wants the Nespresso coffee owner to sell the stake, giving it the financial ammunition for a bigger transformation than anything analysts expect from Schneider’s first major presentation to investors.

Nestle management faces increased pressure to “clarify its thinking on the company’s midterm relationship with L’Oreal,” UBS analysts led by Pinar Ergun said in a note. While the base case for now is the status quo and a takeover bid is a possibility, a disposal is the most likely course in the mid to long term, she said, “given the diverging strategic paths of the two companies over the last decade.”

Schneider, who took over as CEO in January, has already stolen some of his own thunder by announcing a share buyback worth as much as 20 billion Swiss francs (US$21bil) and acquiring coffee and fresh-food businesses, as well as moving to sell Nestle’s US confectionery business.

Nestle is seeking growth in businesses such as coffee, water and pet food as it confronts a consumer backlash against sugary snacks that contributed to a June warning that sales growth this year will be the weakest in at least two decades.

Loeb’s Third Point has called for more radical change after investing some US$3.5bil this year in the Swiss company, demanding a higher operating-margin target and a sale of its US$28bil L’Oreal stake.