Third Point urges Nestle to embrace change
Third Point released a thirty-four-page presentation outlining concrete steps Nestle should take now to better position itself for the future. "The consumer products industry is evolving at an unprecedently rapid pace and Third Point urges Nestle to embrace change and imbue its culture with a mindset of #NestleNOW to avoid falling irreparably behind." In a letter to Nestle's Board of Directors, Daniel Loeb said: "A year ago, Third Point announced an investment of more than $3 billion in Nestle and a prescription for the Company to ensure long-term value for its stakeholders by improving profitability, capital efficiency, and its portfolio following years of lackluster financial performance. Over the past year, organic sales have weakened as Nestle continues to lose market share in key focus areas and the stock has underperformed. Although the Company has taken some steps consistent with our suggestions, the modest pace and magnitude of these changes suggest that Nestle feels satisfied with its position. [...] Today, we have shared a roadmap with you and our fellow shareholders to ensure that Nestle maintains its competitive position and achieves long-term success. These are not quick fixes intended to generate short-term results. This is a call for urgency - rather than incrementalism - to capitalize on fleeting opportunities and innovations that competitors will capture if Nestle does not energize itself. We urge Nestle to adopt a #NestleNOW mindset and become sharper in articulating its strategy, bolder in re-shaping its portfolio, and faster in overhauling its organization. Nestle's current strategy is vaguely defined and plagued by internal inconsistencies. [...] The message sent by a company executing only half-way on its strategic vision is confusing to all of its stakeholders. [...] Nestle's management is not moving quickly enough to exit underperforming and non-strategic businesses. Nestle has divested less than 2% of sales despite a thriving environment for global M&A. We believe there is little to no chance that the current portfolio can sustainably deliver Nestle's targeted mid-single digit percent organic sales growth. The portfolio continues to have significant exposure to categories external to its areas of focus that have lower growth, lower margins, and command lower valuations which, in aggregate, erode the strengths of the core businesses. We believe Nestle should divest as much as 15% 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. Nestle should use the proceeds from these sales to do more M&A in key areas or engage in expedited share buybacks. [...] Nestle's insular, complacent, and bureaucratic organization is overly complex, lethargic, and misses too many trends. [...] the Company has been woefully late to participate in some of the key new trends that have driven growth in food and beverages, allowing incipient brands and more focused competitors to capture market share. Even without internal innovation, Nestle's growth might have been faster if the Company had adopted a more aggressive approach to acquiring fast-moving smaller brands. 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."