Daniel Loeb Closing in on Nestle
Daniel Loeb's hedge fund Third Point LLC revealed on Sunday that it has taken a $3.5 billion dollar position in the Swiss conglomerate Nestle. This makes the firm the 6th largest holder of Nestle. However, this is also the largest initial bet for the fund. Third Point released a letter on Sunday that urged Nestle to sell off its 23% stake in L'Oreal and shave off other operations that Third Point sees as nonessential to operations.
However, CEO Mark Schneider indicated today that he plans to stay the current course. Nestle released a statement this morning saying it keeps an "open dialogue with all our shareholders" but "remained committed to executing our strategy and creating long-term shareholder value." Schneider has previously outlined a plan for growth which includes further expanding their Stouffer's and Nesquik brands.
Early Monday, the stock price has soared 4%, a sign that investors welcome a Loeb shakeup. Nestle has been plagued by slow growth numbers and analyst reports that the firm may lack the desire to cut costs.
However, as I look at this story, I wonder if the case of slowed growth is a product of management, or current economic conditions. Global growth and consumer demand has been slowing for some time now. And it is no help that consumers have shifted their preferences to a more healthy diet. Nestle, at the moment, is not positioned to capture this change in consumer preferences, but I wonder if solidifying the core operations of Nestle is the best idea.
Also, on another post on the HF thread someone wondered why activist investors cause CEO's of such large companies havoc. After all, Third Point only owns around 1.6% of the company.This might be a good case study. Now Nestle has been brought to the forefront of the investing news cycle, with every misstep to be criticized by Third Point and its investors. Every quarter's end will bring a whole new batch of criticisms for Schneider and his management team, although Loeb has been unusually positive with the Nestle thus far.
Also, it will be interesting to see how an American activist fund will do with the European conglomerate. In the past, similar situations have not always had positive results.
What do you think? Does this signal better times to come for Nestle? Is it time to go long Nestle?