Loeb presses Nestle to fix "muddled" strategy with L'Oreal sale

[NEW YORK] Activist investor Dan Loeb stepped up pressure on Nestle SA, arguing it needs to do more to improve its performance, including divesting its stake in cosmetic company L'Oreal SA, taking a hard look at its governance structure and splitting into three divisions.

"We do not believe that the company is living up to this mandate today with its muddled strategic approach and we are concerned that Nestle does not fully appreciate the rapidly occurring shifts in consumer behavior that threaten its future," Loeb said in a letter to the company's board Sunday.

The move comes a year after Loeb's Third Point disclosed a us$3.5 billion stake in the Vevey, Switzerland-based consumer goods giant. The activist fund had said it planned to keep a watchful eye on the company's efforts to improve performance under its new Chief Executive Officer Mark Schneider, who outlined his plans for the company in September.

"There are too many examples of missed opportunities to claim that Nestle's organization is well-suited to today's markets. We believe the 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," Loeb said.

Loeb said the company hasn't shown the necessary urgency since it released its own plan in September. Third Point also outlined its own strategy to improve Nestle in a 34-page presentation that calls for, among other things, divesting certain frozen-food brands and other products that don't fit with its broader strategy.

"We believe Nestle should divest as much as 15 per cent 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," he said.

Loeb also highlighted the concerns he had at the board level under Chairman Paul Bulcke.

"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 food and beverage industry to assist the board in defining the company's strategy," he said in the letter.

BLOOMBERG