Nestlé has reacted to a scathing attack on its progress by activist investor Daniel Loeb by highlighting the company’s long-term value creation strategy.
Loeb, who heads the Third Point hedge fund which bought a 1.25% stake in Nestlé last year for $3.5 billion, said the Swiss company has a “muddled strategic approach” and raised concerns that it “does not fully appreciate the rapidly occurring shifts in consumer behaviour that threaten its future”.
In a letter published on Sunday, Third Point called for the world’s largest food and beverage company to divest as much as 15% of sales either through sales, spin-offs, or other methods to better align the portfolio around key categories, using the proceeds to carry out more strategic mergers or acquisitions.
However, Nestlé has countered by highlighting the “swift and decisive” action the company is taking to deliver results.
It drew attention to the repositioning of its brand portfolio with a focus on high-growth categories. Since Loeb’s investment, the firm announced a global coffee partnership with Starbucks, concluded the acquisition of nutritional health product supplier Atrium Innovations and invested in brands such as Freshly, Sweet Earth, Blue Bottle Coffee, Chameleon Cold-Brew and Terrafertil. It has also offloaded its US confectionery unit for £2.8 billion.
In a statement, Nestlé said it has “delivered revenue growth in a challenging environment, with volume growth at the high end of the food and beverage industry”. It claims to have delivered “strong total shareholder” return over the long term.
The company saw its net sales increase 1.4% year-on-year to CHF 21.3 billion ($21.9 billion) in its most recent quarterly results, thanks in part to increased demand for infant nutrition and dairy products in the Middle East.
But Third Point believes that Nestlé is not moving fast enough to exit underperforming and non-strategic businesses.
In a statement, it said: “This is a call for urgency – rather than incrementalism – to capitalise on fleeting opportunities and innovations that competitors will capture if Nestlé does not energise itself.
“We urge Nestlé to adopt a #NestléNow mindset and become sharper in articulating its strategy, bolder in re-shaping its portfolio, and faster in overhauling its organisation.”
Loeb believes that company should simplify its “overly complex organisational structure” and split internally into three divisions based around beverages, nutrition, and grocery to improve focus, agility, and accountability.
He concluded that if the changes that Third Point are implemented, Nestlé’s long-term trajectory will improve and earnings per share will double by 2022.
© FoodBev Media Ltd 2023