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Martinne Geller
LONDON (Reuters) – Nestle faces increased pressure to accelerate change after third-party activist investor intensified his criticism of the biggest food company of the world.
The New York-based hedge fund sent a letter to Nestlé's board of directors and issued a presentation Sunday calling for more urgent measures and recommending that Nestle double its earnings per share by 2022
and the presentation, published on a new website of Third Point, a year after the company, led by billionaire investor Daniel Loeb, took a stake of about 3 billion dollars in the manufacturer of KitKat bars and Perrier water.
The letter had a very limited immediate impact on Nestlé shares, up 0.2% at 11.15 GMT Monday, though they outperformed the overall European stock market, down 0.8%.
Analysts said that they shared many of Loeb's concerns about Nestle and agreed with some of his prescriptions.
His ideas include the sale of his 23% stake in L'Oréal and the use of the proceeds for mergers and acquisitions or share repurchases, the reorganization into three internal units and the business transfer accounting for up to 15% of sales.
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They wondered, however, if the confrontational style of the New York investor would earn points with one of the largest European companies, with a reputation for conservatism.
"Although we believe that Third Point's proposals make sense, and that they are probably useful from the point of view of stock prices, we are not convinced that this will change," said the analysts at RBC Capital Markets. what they called "practical obstacles".
They cited the fact that he had a relatively new CEO, Mark Schneider, and his need to keep his employees motivated, Third Point's modest participation of only 1.3% and the horizon to Nestlé long term.
VALUE INVESTORS
Thomson Reuters data show that just over 11% of Nestlé shareholders are considered "valuable" investors who typically target companies they perceive as unfairly undervalued by the market. They often work in camera with the desire to maintain their positions for a long time.
According to Third Point, Nestle should be able to reach a profit margin of 20% by 2022, compared to 16.5% in 2017.
Nestlé has already targeted a margin of 17.5 to 18 , 5% by 2020, for the first time last year, after the first letter of Loeb.
Loeb said that Nestle should be able to double its profits to 7 Swiss francs per share by 2022, up from 3.55 francs in 2017.
"We share a lot of the money. analysis, but we wonder if the conflicting style change what Third Point is looking for, "wrote Jefferies analysts in a note.
They point out that since Schneider took over the head office 18 months ago, after having joined the German healthcare company Fresenius, Nestle has taken measures that are radical for the company.
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In addition to recruiting its first external CEO in nearly a century, Nestle has set its first margin target, the goal of buying and selling brands representing up to 10%. To 10% of the turnover, Oreal's participation by not renewing a shareholder pact and by creating new board members with relevant external expertise.
Loeb says Nestlé should sell up to 15% of sales either through sales, spin-offs or other methods to align its business with higher growth categories.
Nestlé recently sold its troubled US confectionery business to Italian Ferrero and agreed to take control of the sale of Starbucks packaged coffees worldwide.
Nestle did not comment immediately on Third Point's letter.
(Report by Martinne Geller, edited by Keith Weir)
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