Nestlé's share price soared by more than four per cent yesterday, as activist hedge fund Third Point snapped up shares in the consumer group.
The investment fund, owned by American philanthropist Daniel Loeb, said on Sunday that it had taken a $3.5bn (£2.75bn) stake in the KitKat manufacturer.
In a letter to shareholders, which puts the company's market capitalisation at $250bn, Third Point announced that it would be pursuing ambitious changes at Nestlé.
“Third Point invested in Nestlé because we recognised a familiar set of conditions that make it ripe for improvement and change: a conglomerate with unrealised potential for margin improvement and innovation in its core businesses, an unoptimised balance sheet, a number of non-core assets, and a recent history of meaningful under-performance versus peers,” the letter read.
“It is rare to find a business of Nestlé’s quality with so many avenues for improvement.”
The hedge fund proposed a four-point plan, which would seek to drive operating margins from 15 per cent to more than 20 per cent, sell off certain assets such as the US confectionery operations (which Nestle was already planning), sell the 29 per cent stake in L'Oréal and return cash to shareholders via share buybacks.
Russ Mould, an investment director at AJ Bell, noted that Loeb prefers to call himself an “event-driven investor” rather than an activist.
But he added: “Loeb does have a good record of working to ensure an event happens through agitating for change – recent high-profile campaigns include Dow Chemical and Sotheby’s – while portfolio picks Time Warner and Monsanto are the subject of takeover bids from AT&T and Bayer respectively.”
Nestlé has British confectionery factories in Carlisle, Newcastle, Halifax, Girvan, Tutbury and York, pet food plants in Liverpool, Wisbech and Sudbury and a water bottling site in Buxton, Derbyshire.