Investor presses Nestle to fix strategy, sell L’Oreal stake

Bloomberg

One year after buying a stake in Nestle SA and watching his holding lose value, activist investor Dan Loeb is running out of patience.
Loeb fired off a 34-page presentation over the weekend, demanding a far more radical transformation than the world’s largest food company has so far embraced. Accusing Nestle of a “muddled strategic approach” that threatens its future, Loeb said the company should sell its valuable stake in cosmetics company L’Oreal SA and consider splitting into three units to spur growth. He also said Chairman Paul Bulcke is possibly obstructing change as the company needs more outsiders in management to shake up its “insular” culture.
With Nestle shares down about 10 percent since Loeb announced his $3.5 billion stake last year, CEO Mark Schneider is facing more pressure after having resisted the activist’s biggest demands. While he’s made some acquisitions and announced a major buyback, he’s not engineered the wholesale makeover that Loeb is now asking for.
“We do not believe that the company is living up to this mandate today with its muddled strategic approach and we are concerned that Nestle does not fully appreciate the rapidly occurring shifts in consumer behavior that threaten its future,” Loeb said in a letter to the company’s board.
The stock fell 0.3 percent in early trading on Monday. L’Oreal fell 0.9 percent. A spokeswoman for Nestle said the company didn’t have an immediate comment. “There are too many examples of missed opportunities to claim that Nestle’s organisation is well‐suited to today’s markets,” Loeb said.
“We believe the company should simplify its overly complex organisational structure and split internally into three divisions organised around beverages, nutrition, and grocery to improve focus, agility, and accountability.”
Loeb said the company hasn’t shown the necessary urgency since it released its own plan in September. Third Point also outlined its own strategy to improve Nestle in the presentation that calls for, among other things, divesting certain frozen-food brands and other products that don’t fit with its broader strategy.
“We believe Nestle should divest as much as 15 percent of sales either through sales, spin‐offs, or other methods to better align the portfolio around key categories. It is clear that the company’s noncore financial stake in L’Oreal should be sold since the board remains unable
to articulate a compelling long‐term strategic rationale for its continued ownership,” he said. Nestle has repeatedly resisted calls to sell the L’Oreal stake.