Loeb's Third Point hedge fund targeting Nestle for strategic changes

Loeb's Third Point hedge fund targeting Nestle for strategic changes Bloomberg

Loeb's Third Point targets 'staid' Nestle for change

The acquisition of about 1.25% stake in Nestle is said to put pressure on the company to find ways to accelerate growth.

Third Point disclosed the Nestle (Swiss: NESN.VX - news) position in a letter to the hedge fund's investors, in which it argued the food company should sell its 23 percent stake in French cosmetics firm L'Oreal SA.

It also recommended Nestle more than double its debt load, as well as sell the L'Oreal stake, in order to generate the capital to buy back stock.

His fund, Third Point, said Sunday it had taken a $3.5 billion stake in Nestle and would push for a new strategy to help the company improve its sales and profitability.

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Schneider, the first Nestle outsider to run the world's biggest food producer in almost a century, has already started shifting the company's priorities toward healthier foods and faster-growing businesses since taking the helm on January 1.

Third Point also invested in German utility operator E.On, which spun off its generation assets into Uniper past year, arguing the remaining regulated grids and renewables business "is now misunderstood by the market and attractively priced".

Nestle took a stake in L'Oreal 43 years ago, at a time when the cosmetics maker feared nationalization.

"We are convinced that Mark Schneider has very ambitious plans for Nestle, including some or all of Third Point's proposals", Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, wrote in a note. "Now with Mr. Schneider, one of his top priorities was to improve shareholder communication and investor relations". He has already scrapped the company's long-standing sales target and said it might sell its USA confectionery business, which includes brands such as Baby Ruth and Butterfinger.

Analysts and investors have prodded Nestle for years to sell the L'Oreal shares, saying it didn't make strategic or financial sense to hold on to the stock.

Third Point said it should slim down and sell some businesses to focus on the most profitable areas.

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

Bennink ran baby food maker Royal Numico when Danone bought it for $16.8 billion in 2007, oversaw the break-up of Sara Lee and ran its coffee business, which is now owned by JAB Holding. Analysts also speculate it could sell its US frozen food business.

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