A significant development occurred in the consumer product goods sector, as one of the largest and most admired industry leaders came under the looking glass of an activist investor. CPG firms being targeted by activist firms is not a new development, but taking on the European based industry leader is noteworthy.
Earlier this week, hedge fund firm Third Point, under the direction of activist investor Daniel Loeb, announced that it had accumulated about $3.5 billion of stock holdings in global consumer products producer Nestle. With this move, Third Point became the sixth-largest shareholder with a reported 1.25 percent stake in company shares.
Upon the announcement, the hedge fund manager immediately published a letter with a list of recommendations as to how the consumer goods giant can dramatically improve earnings and growth.
Nestle recently appointed a new CEO in January of this year after the company had missed multiple years of sales growth targets. CEO Mark Schneider was recruited from the healthcare industry to add a fresh perspective and to assist in identifying key areas of growth in healthier foods and health care related businesses. Thus, fresh perspectives and a call-to-action were already underway internally.
Nestle wasted little time in announcing plans to launch a $20.8 billion share buyback program as well as to scout out consumer health-care acquisitions. According to business media, plans were fast-tracked amid building shareholder pressures.
Activist investors surrounding CPG and food companies is not per-se, newsworthy, since the likes of Procter &Gamble, Kraft-Heinz, Mondelez International, among others, are situations that Supply Chain Matters has previously commented on.
The significance of a very high-profile and well-respected European CPG company, recognized for superior supply chain and food sustainability capabilities and commitment being influenced by an activist investor and hedge fund is indeed, noteworthy.
Consider for a moment, if just some of the billions of dollars being allocated to share-buybacks were additionally invested in helping farmers and growers to convert their fields and methods to support broader and healthier food choices. Consider if added investments in advanced technologies are applied to monitoring the safety, freshness and processing of food across the end-to-end supply chain.
That is the difference between a short-term emphasis vs. one of longer-term. An industry being challenged by rapidly changing food preferences demands healthier food choices along with brands committed to freshness and sustainability. Investors seek shorter-term value through profitability growth as well as merger and acquisition moves.
We trust Nestle will prevail is balancing both such needs.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.