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Hedge fund star Dan Loeb bets $3.5 billion on Nestle

Hedge fund star Dan Loeb bets $3.5 billion on Nestle

Activist investor Daniel Loeb's Third Point LLC on Sunday unveiled a stake of more than 1 per cent in Switzerland's Nestle SA and urged the world's largest packaged foods maker to improve margins, buy back stock and shed non-core businesses. It said in the letter that it has already had productive conversations with Nestle management. Food companies are under pressure to reduce costs, after Kraft Heinz Co.'s unsuccessful bid for Unilever earlier this year showed that even the largest players could become targets. Nestle has missed its long-term sales target for four straight years, but so far has eschewed radical moves like Danone's (DANO.PA) $12.5 billion purchase of WhiteWave or Reckitt Benckiser's (RB.L) $16.6 billion Mead Johnson deal.

Third Point, better known for targeting US and Japanese companies, has recently been drawn to European investment opportunities, according to the firm's first quarter investor letter. "Beyond that, we have no specific comment."One top-40 investor said Nestle has done a good job adapting over the years to a changing industry, selling its stake in eyecare company Alcon and buying pet food business Ralston Purina and Wyeth Nutrition."The new CEO has been brought in with a mandate for change", the investor said, pointing out that Schneider is Nestle's first external CEO hire in almost a century". Additionally, Third Point doesn't necessarily have a large enough stake in Nestle to truly affect change.

Analysts at Jefferies agree that Third Point makes some good points about Nestle, but execution would be hard. Nestle said this month it may sell its US candies unit, which includes brands such as Butterfinger and BabyRuth.

Third Point also said the firm should set more aggressive profit targets, and return money to investors by buying back shares.

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L'Oreal owns about 9.4 percent of Sanofi, and speculation has swirled for years that the Paris-based cosmetics company would sell the stock to help pay for a repurchase of Nestle's L'Oreal shares. "Now with Mr. Schneider, one of his top priorities was to improve shareholder communication and investor relations".

Dutch food industry veteran Jan Bennink is advising Third Point on its Nestle investment and has also invested personally alongside the fund, Third Point said.

Russ Mould, investment director at AJ Bell, said: "Whether management and staff at any of these sites, or the Gatwick HQ, are affected by Third Point's call for greater efficiency and asset sales remains to be seen and will again initially depend on how Nestle's board in Vevey, near Geneva, responds to Third Point's list of proposals". Analysts also speculate it could sell its USA frozen food business.

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