Of the four demands activist Third Point put to the Swiss giant's board, just one is worth pursuing. Share buybacks, selling divisions and a sale of Nestlé's L'Oreal stake wouldn't obviously juice up the share price. Old-fashioned margin improvement holds the most promise.
Daniel S. Loeb, founder of Third Point LLC, participates in a panel discussion during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nevada May 9, 2012.
Nestlé on June 27 unveiled plans to buy back as much as 20 billion Swiss francs of shares over three years, two days after activist Dan Loeb's hedge fund Third Point went public with a $3.5 billion stake in the company and a campaign urging it to improve performance.
The Swiss food group said that it would adjust the size of its share repurchase programme to reflect any big acquisitions and expects to have a net debt of about 1.5 times EBITDA in 2020.
Third Point is urging the Swiss food group to sell its 23 percent stake in cosmetics company L'Oreal and adopt a formal margin target range of between 18 per cent and 20 percent by 2020. It has also urged Nestlé to reduce its exposure to certain businesses and increase debt levels while returning capital to shareholders.
Nestlé shares were trading at 83.80 Swiss francs at 1400 BST on July 3, up 0.5 percent on the previous day's close and 2 percent above their level the day before Loeb's campaign was made public.