Choc-full of advice
Daniel Loeb, the sharp-tongued activist investor, has run out of patience. In a 34-page letter to top management at Nestlé that was made public on Sunday, he says changes initiated by the Swiss conglomerate to address investors’ concerns over its poor growth are too small and too slow.
This would be a good time to remind you, dear reader, that the firm’s sales rose only 2.4% last year — the slowest rate in more than two decades. Its share price has declined more than 8% so far this year.
“Nestlé’s insular, complacent, and bureaucratic organisation is overly complex, lethargic and misses too many trends,” Loeb writes. “The company has been woefully late to participate in some of the key new trends that have driven growth in food and beverages, allowing incipient brands and more focused competitors to capture market share.”
If you are a regular Shoptalk reader — and you damned well better be — you will know that multinational food groups are being squeezed by supermarket groups demanding better prices. Revenue growth is also harder to come by, as consumers are shifting towards more natural products made by a raft of slick upstarts.
If, for whatever reason, you didn’t know, Nestlé makes Kitkat bars, Häagen-dazs ice cream and Maggi noodles. The company has a market value of about $235bn.
Just over a year ago, Loeb’s hedge fund, Third Point, revealed its $3.5bn stake in Nestlé, along with his plan for reform. Remember that Loeb has agitated for change at companies such as Yahoo, Dow Chemical and Sony.
Going a step further, Third Point even launched a website to document its case for change at Nestlé.
To be fair, Nestlé hasn’t done nothing. It hired Mark Schneider, a German, as CEO in early 2017 — kind of a big deal because Schneider is the company’s first non-swiss CEO in nearly a century. In 18 months, he has made nine smallish acquisitions and 11 divestitures, and has restructured parts of the business.
The group also has fresh blood in independent director Kasper Rørsted, the boss of Adidas.
e:
No sweet lines
In a research note, Societe Generale analyst Warren Ackerman says: “We suspect that Third Point is under water with its Nestlé investment and is clearly frustrated that Nestlé’s actions haven’t gone far enough.”
Not to oversimplify, but Loeb wants Nestlé to do three things:
● Split itself into three key divisions — beverages, nutrition and groceries;
● Shed its less profitable divisions or nonstrategic businesses (like its 23% stake in cosmetics firm L’oréal), which are tying up capital; and
● Use the proceeds to buy smaller brands favoured by millennials or for share buybacks.
A point Loeb makes — and it’s quite an important one — is that Nestlé’s board lacks the experience to direct the company. He moans that “only one of 12 independent Nestlé directors … has fast-moving consumer goods experience” and that “zero directors have external food and beverage experience”. Nestlé chair Paul Bulcke, he adds, is “too comfortable” with the status quo.
Even if Loeb is right — and, to be blunt, he is — and Nestlé isn’t being aggressive enough in delivering investor value, the issue is this: Loeb’s stake (roughly 1.3%) is too small to force bold decision-making at the company. Nestlé needs more critics on its register.