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?

Hedge Fund Interview Course

  • 814 questions across 165 hedge funds. Crowdsourced from over 500,000 members.
  • 11 Detailed Sample Pitches and 10+ hours of video.
  • Trusted by over 1,000 aspiring hedge fund professionals just like you.

Comments (4)

Jun 26, 2017 - 3:51pm

HFs join and start throwing around their big words and it frightens Nestle. I think L'Oreal has shown strong but steady growth and they own a good portion of the cosmetic market which fits well with their slow and steady strategy.

Jun 30, 2017 - 10:14am

Update: Nestle is planning on executing a $20.8 billion share buyback.

According to WSJ, Nestle wants to,

focus its capital spending on categories like coffee and pet care and look for consumer health-care acquisitions, a move that comes after it found itself the target of activist investor Third Point LLC.

So it looks like Nestle actually does plan on listening to the requests of Third Point, despite saying earlier they would not.

Is this a good move for Nestle?

Start Discussion

Total Avg Compensation

July 2021 Hedge Fund

  • Vice President (18) $520
  • Director/MD (10) $359
  • NA (4) $325
  • Portfolio Manager (7) $297
  • Manager (4) $282
  • 3rd+ Year Associate (18) $269
  • 2nd Year Associate (27) $247
  • Engineer/Quant (51) $237
  • 1st Year Associate (63) $188
  • Analysts (184) $168
  • Intern/Summer Associate (15) $125
  • Junior Trader (5) $102
  • Intern/Summer Analyst (208) $82