American hedge fund Third Point has unveiled a $3.5 billion stake in Nestlé and urged the world’s largest food company to buy back stock.
The fund, led by activist investor Dan Loeb, has taken an investment position of around 1.3% of Nestlé and it said productive conversations are already underway.
Nestlé shares surged by 4.7% to an all-time high this morning with investors responding favourably to the announcement.
Third Point is proposing to set Nestlé a profit margin target of between 18% and 20% by 2020, offload its non-core range, sell its stake in cosmetics maker L’Oréal and increase leverage for share buybacks.
The announcement marks the largest single investment by Dan Loeb and Third Point since it was founded in 1995.
In a statement, the fund said: “Despite having arguably the best positioned portfolio in the consumer packaged goods industry, Nestlé shares have significantly underperformed most of their US and European consumer staples peers on a three year, five year, and ten year total shareholder return basis.
“One year returns have been driven largely by the market’s anticipation that with a newly-appointed CEO, Nestlé will improve.”
It continued: “Third Point invested in Nestlé because we recognised a familiar set of conditions that make it ripe for improvement and change: a conglomerate with unrealised potential for margin improvement and innovation in its core businesses, an unoptimised balance sheet, a number of non-core assets, and a recent history of meaningful under-performance versus peers.
“It is rare to find a business of Nestlé’s quality with so many avenues for improvement.”
Mark Schneider, who took charge of Nestlé in January and is the first CEO from outside the company in nearly a century, has been attempting to reignite growth after 2016 sales growth fell to the slowest rate in a decade.
The Swiss-based company announced earlier this month that it may put its US confectionery business up for sale, which includes brands such as Butterfinger and BabyRuth and generated $924 million in sales last year.
Last week Nestlé also revealed it is a lead investor in the $77 million round of funding in US prepared meal provider Freshly, reflecting its ambition to keep up with changing consumer trends by focusing on healthy foods.
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