Nestle stock surges amid reports US hedge fund takes stake

Nestle stock surges amid reports US hedge fund takes stake

Nestle stock surges amid reports US hedge fund takes stake

Nestle (NESN.S) is under pressure from USA activist shareholder Third Point, which has taken a US$3.5 billion stake in the food maker and is pushing Europe's largest company to improve margins, buy back shares and get rid of non-core businesses.

The 3.28 billion Swiss francs ($3.4 billion) stake is the largest ever taken by the hedge fund, which pressed for change in recent years at USA internet firm Yahoo (NasdaqGS: YHOO - news) and Japan's Sony Corp. It said in a letter posted on its website that it had already had productive conversations with Nestle management.

The news sent Nestle shares to a record high after they rose more than 4% in Zurich to 85.8 Swiss francs (£69).

"Nestle has arguably been lackadaisical and complacent, and underperformed its potential", Andrew Wood, an analyst at Sanford C Bernstein, wrote in a note. It might be spurred into action by this external force.

Third Point has a reputation for aggressively pushing for change at target firms, including Sony and Yahoo!, and gave a stinging assessment of Nestle's performance in recent years as it announced its acquisition on Sunday.

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Nestle is the largest packaged goods player in an industry that has been struggling with an emerging markets slowdown, dropping prices across developed markets and consumers that demand healthier, fresher products.

The move comes as Nestle's new Chief Executive Officer Mark Schneider aims to boost the company's health strategy as well as focus on the businesses that are growing fastest, such as coffee and pet food.

The first CEO from outside the company in almost a century, his appointment was seen as an acknowledgement that Nestle needed new thinking.

In February, he scrapped Nestle's longstanding sales target as it reported disappointing annual results, echoing rivals by striking a cautious tone. The firm also called on Nestle to set a formal operating margin target of 18-20 percent by 2020. Vitamin maker Royal DSM NV also attracted the activist, and went on to sell its majority stake in a basic plastics and resins unit to CVC Capital Partners after facing calls to break up.

Analysts at Jefferies agree that Third Point makes some good points about Nestle, but execution would be hard.

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