Jonathan Eze with agency report
American hedge fund Third Point has unveiled a $3.5 billion stake in NestlÃ© and urged the worldâ€™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 per cent of NestlÃ© and it said productive conversations are already underway.
NestlÃ© shares surged by 4.7 per cent in the United States stock market to an all-time high as investors responded favourably to the announcement.
Third Point is proposing to set NestlÃ© a profit margin target of between 18per cent and 20 per cent by 2020, offload its non-core range, sell its stake in cosmetics maker Lâ€™OrÃ©al 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.
A statement culled from Food Bev media website said,: â€œDespite having arguably the best positioned portfolio in the consumer packaged goods industry,
NestlÃ© shares have significantly underperformed most of their US and European consumer staples peers on a three year, five year, and 10 year total shareholder return basis.
â€œOne year returns have been driven largely by the marketâ€™s anticipation that with a newly-appointed CEO, NestlÃ© will improve,â€ the statement said.
It continued: â€œThird Point invested in NestlÃ© 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 NestlÃ©â€™s quality with so many avenues for improvement,â€ it added.
Mark Schneider, who took charge of NestlÃ© 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 NestlÃ© 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.