Dan Loeb’s Letter & Presentation to Nestle #NESTLENOW

Smart Money
  • A year ago, Third Point announced an investment of more than $3 billion in Nestle and a prescription for Nestle to ensure long-term value for its stakeholders by improving profitability, capital efficiency, and its portfolio following years of lackluster financial performance
  • Over the past year, sales have weakened as Nestle continues to lose market share in key focus areas and stock has underperformed
  • Do not believe that Nestle is living up to its mandate with its muddled strategic approach and concerned that Nestle does not fully appreciate the rapidly occurring shifts in consumer behavior that threaten its future
  • This is a call for urgency – rather than incrementalism – to capitalize on fleeting opportunities and innovations that competitors will capture if Nestle does not energize itself

Be Sharper in Articulating Strategy

  • Nestle currently describes itself as a company focused on “nutrition, health and wellness,” but many categories and brands continues to fall outside that definition
  • Nestle further highlights coffee, pet care, infant nutrition, and water as key categories for long-term development, yet only about half of the Company’s sales are generated from those areas
  • Sometimes lumps the rest of its sales into “other categories,” nomenclature that neatly captures the remaining mixed bag of businesses that deviate from its focus areas
  • The message sent by a company executing only half-way on its strategic vision is confusing to all stakeholders
  • Nestle’s Board, which added three new, highly qualified external directors following our investment, is accountable for defining a coherent approach to managing the business
  • It is striking to us that, although Nestle is the #1 food and beverage company in the world, there is still no Board member with external leadership expertise in the F&B industry

Be Bolder in Re-shaping the Portfolio

  • Nestle has divested less than 2% of sales despite a thriving environment for global M&A
  • Portfolio continues to have significant exposure to categories external to its areas of focus that have lower growth, lower margins, and command lower valuations which, in aggregate, erode the strengths of the core businesses
  • Nestle should divest as much as 15% 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 non-core 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
  • Nestle should use the proceeds from these sales to do more M&A in key areas or engage in expedited share buybacks

Be Faster in Overhauling the Organization

  • Nestle’s insular, complacent, and bureaucratic organization is overly complex, lethargic, and misses too many trends
  • Even without internal innovation, Nestle’s growth might have been faster if the Company had adopted a more aggressive approach to acquiring fast-moving smaller brands
  • Company should simplify its overly complex organizational structure and split internally into three divisions organized around beverages, nutrition, and grocery to improve focus, agility, and accountability
  • All venerable companies must adapt to a changing world or risk becoming obsolete, as we have seen happen to even legendary brands like GE

Third Point believes the changes we have suggested in today’s presentation will materially improve Nestle’s long-term trajectory, double earnings per share by 2022, and create sustainably better performance over time. The time for incrementalism has passed and Nestle’s leadership must show convincingly that it understands what Nestle needs now.

Third Point Letter to Nestle’s Board of Directors, July 2018
Third Point Presentation for Nestle, July 2018

Third Point is a New York-based long/short, event-driven, and activist hedge fund founded in 1995 by Dan Loeb. As of 2014, Third Point had an estimated AUM of $17.5 billion.

Image Source: Third Point

 

 

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