Loeb presses Nestle to fix strategy, sell its stake in L’Oreal

One year after buying a stake in Nestle and watching his holding lose value, activist investor Dan Loeb is running out of patience.

Loeb fired off a 34-page presentation over the weekend, demanding a far more radical transformation than the world’s largest food company has so far embraced. Accusing Nestle of a “muddled strategic approach” that threatens its future, Loeb said the company should sell its valuable stake in cosmetics company L’Oreal and consider splitting into three units to spur growth. He also said Chairman Paul Bulcke is possibly obstructing change as the company needs more outsiders in management to shake up its “insular” culture.

With Nestle shares down about 10 percent since Loeb announced his $3.5 billion stake last year, Chief Executive Officer Mark Schneider is facing more pressure after having resisted the activist’s biggest demands. While he’s made some acquisitions and announced a major buyback, he’s not engineered the wholesale makeover that Loeb is now asking for.

“We do not believe that the company is living up to this mandate today with its muddled strategic approach and we are concerned that Nestle does not fully appreciate the rapidly occurring shifts in consumer behavior that threaten its future,” Loeb said in a letter to the company’s board Sunday.

The stock fell 0.3 percent in early trading Monday. L’Oreal fell 0.9 percent. A spokeswoman for Nestle said the company didn’t have an immediate comment.

“There are too many examples of missed opportunities to claim that Nestle’s organization is well-suited to today’s markets,” Loeb said. “We believe the company should simplify its overly complex organizational structure and split internally into three divisions organized around beverages, nutrition, and grocery to improve focus, agility, and accountability.”

Schneider’s main actions since he became CEO:

■ Set Nestle’s first fixed profitability target, aiming for an operating margin of as much as 18.5 percent in 2020 (still shy of what Loeb suggested and lower than Unilever’s).

■ Launched a 20 billion-franc share buyback program.

■ Ended Nestle’s traditional guidance for sales growth after the company missed it several years, and promised that revenue will accelerate.

■ Sharpened focus on Nestle’s coffee, pet-food, nutrition and bottled-water businesses.

■ Acquisitions have included $2.3 billion for dietary supplements maker Atrium Innovations and $7 billion for the right to sell grocery products under the Starbucks brand.

■ Divestment of 2 percent of revenue through selling the U.S. chocolate operations and planning to exit the Gerber insurance business.