Nestle plans $10bn revamp as activist Loeb takes aim

Bloomberg

Nestle SA may buy or sell businesses with combined sales of almost 10 billion francs ($10 billion) as Chief Executive Officer Mark Schneider embarks on the biggest overhaul of the world’s largest food company in at least a decade.
Selective acquisitions and divestments could affect about 10 percent of total revenue, Schneider told investors as he unveiled his new strategy to investors at a conference in London on Tuesday. Nestle, which has about 90 billion francs in sales, aims to focus on faster-growing businesses such as coffee, bottled water and pet care as the company tries to sell its US chocolate business in its first major retreat from sugary snacks. “We’ll need to trade out of some product areas and into others,” Schneider said. “We’ll act decisively, and the US confectionery is a good example of that.”
For the first time, the Swiss owner of Nespresso coffee and Perrier water set a fixed profitability target, aiming for an underlying trading margin in 2020 that’s as much as 2.5 percentage points higher than what it achieved last year. That’s still shy of the level sought by activist investor Dan Loeb, whose hedge fund firm Third Point bought a $3.5 billion stake in Nestle earlier this year.
Loeb declined to comment on Nestle’s plans. The shares traded 0.9 percent higher as of 11:12 am in Zurich. “The target is certainly attainable,” said Jean-Philippe Bertschy, an analyst at Bank Vontobel AG. “While it will please some investors, others—like Loeb—may be a bit disappointed.”
Nestle’s adoption of a profit target marks a broader shift among the world’s biggest food companies, after decades of prioritising scale. Now, with many of their mass-market brands facing skepticism from consumers seeking healthier and hipper alternatives, sales growth is slowing and consumer-goods giants are under pressure from investors to cut costs and to move into more profitable niches.
The CEO already announced a share buyback worth as much as 20 billion francs ($21 billion), the planned disposal of Nestle’s US confectionery unit and acquisitions of coffee and fresh-food businesses. The company has also been cutting jobs at its skincare unit.
Schneider said Nestle isn’t immediately changing its stance on its stake in French cosmetics maker L’Oreal SA, which he described as a “fabulous” investment, contributing 9 percent of the Swiss company’s earnings per share over the past decade. The death of L’Oreal heiress Liliane Bettencourt last week prompted speculation about the future of Nestle’s 23 percent holding in the French cosmetics company.
Nestle plans to keep its US frozen unit, and the ailing skin-health business has a strategic fit, according to the CEO. He also said the company is trying to revamp its Gerber baby nutrition division in the US and Yinlu food in China.
Nestle has faced calls for a shakeup from Third Point, whose stake is equal to about 1 percent, while rival Unilever fended off a takeover bid earlier this year from Kraft Heinz Co., backed by buyout firm 3G Capital Partners.