By Michael J. De La Merced
In revealing his investment position in Nestlé recently, hedge fund manager Daniel S. Loeb urged the company to consider slimming down, as well as buying back its stock.
On June 27th, Nestlé said it was indeed prepared to spend billions of dollars on buybacks—but the company also suggested that it might pursue a number of acquisitions in addition to shedding businesses.
Nestlé said it could buy back almost $21 billion of its shares over the next three years to create value for its shareholders. The company added that it would consider making acquisitions in fast-growing parts of its business portfolio, including coffee, pet care, bottled water and consumer health care.
The plan suggests significant change at Nestlé, the Swiss food giant whose products include Kit Kat bars and Stouffer’s frozen pizzas, at a time when its once-enviable growth rates have declined amid changing consumer tastes.
Nestlé insisted that its plans had arisen from a regular review of the company’s capital positions—its top managers began the review in January—and that the announcement was not a response to Loeb’s activist campaign.
While the company traditionally presents such proposals in September, this time it chose to release the announcement the same day it received regulatory clearance to do so.
Yet Nestlé’s new strategic course still came out only two days after Loeb’s hedge fund, Third Point, emerged as one of the company’s biggest shareholders and presented suggestions aimed at shaking up what Third Point described as a significant underperformer.
Among Loeb’s suggestions was to trim a portfolio of some 2,000 brands to remove dead weight.
The announcement revealed that Nestlé had reached some of the same conclusions. The company said its board was prepared to spend up to 20 billion Swiss francs on stock buybacks. And the conglomerate said it planned to continue to “adjust” its portfolio of operations.
Nestlé announced this month that it was considering a sale of its US candy business, home of Gobstoppers and Butterfinger bars, with the unit in a prolonged sales slump.
Nestlé, however, also emphasized that it was prepared to spend, and potentially spend a lot, to bolster the fast-growing parts of its business.
© 2017 New York Times News Service
Image credits: Tony Cenicola/The New York Times