Dan Loeb's Third Point released a letter on its new activist position in Nestle.
Third Point argues that Nestle's shareholder returns have lagged and that it fits Third Point's "box":
Third Point invested in Nestlé because we recognized a familiar set of conditions that make it ripe for improvement and change: a conglomerate with unrealized potential for margin improvement and innovation in its core businesses, an unoptimized 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 Nestlé’s quality with so many avenues for improvement.
Taking an activist position after a leadership change is an old trick in the activist playbook. The activist's external pressure can give the new CEO cover to articulate a new strategy and make bold changes.
Like other investors, we are also confident that Nestlé is prepared for change because of the company’s wise decision last year to hire a new Chief Executive with a high caliber pedigree from outside its ranks for the first time in nearly a century. Nestlé’s new leader, Dr. Ulf Mark Schneider, had an impressive track record of value creation as the CEO of Fresenius, a German medical supply company, from 2003 until he joined Nestlé. He delivered strong organic sales growth and executed well on transformational M&A, and shares appreciated at a roughly 20% CAGR during his tenure. As he settles into his role at Nestlé, we think he has the ability to execute on the kinds of new initiatives the company must pursue. However, we feel strongly that in order to succeed, Dr. Schneider will need to articulate a decisive and bold action plan that addresses the staid culture and tendency towards incrementalism that has typified the company’s prior leadership and resulted in its long-term underperformance