Nestle's big problem is its crunchy governance

Nestle SA has gained its first activist investor in Dan Loeb's hedge fund Third Point, which demands the world's largest food company address its "staid culture".

One of America's most high profile investors has taken a 3.5 billion U.S. dollars (£2.74 billion) chunk out of Kit Kat owner Nestle as he calls for a shake-up of the firm.

Third Point disclosed its Nestle position in a letter to investors, in which it argued the food company should sell its 23 per cent stake in French cosmetics firm L'Oreal SA.

The activist investor also said Nestle should continue to prune its portfolio, identifying "key pillars of growth for the future" and then "strategically reduce exposure to those that are not".

The global packaged goods industry is grappling with slowing emerging markets, pressure on prices and a consumer shift away from traditional brands toward healthier, fresher fare.

Nestle's stock surge Monday comes months after Germany's Mark Schneider took over as Nestle CEO. In February, he dropped a long-running sales-growth target after missing that goal for the fourth straight year.

He also wants Nestle to adopt a formal margin target range of 18 percent-20 percent by 2020, and to borrow more money to buy back shares.

Third Point also invested in German utility operator E.On, which spun off its generation assets into Uniper past year, arguing the remaining regulated grids and renewables business "is now misunderstood by the market and attractively priced".

Third Point, better known for targeting US and Japanese companies, has recently been drawn to European investment opportunities, according to the firm's first quarter investor letter. It said earlier this month that it might sell its $900 million-a-year US confectionery business in the Swiss food group's latest effort to improve the health profile of its sprawling portfolio.

Before Monday's share jump, Nestle had a market value of $263 billion, making it the largest traded company in Europe.

Representatives for Third Point declined to immediately comment while a representative for Nestle couldn't immediately comment.

Nestle says it's keeping "an open dialogue with all of our shareholders" after news reports that a USA hedge fund has taken a large stake sent shares of the Swiss food and beverages giant soaring.

Russ Mould, investment director at AJ Bell, said: "Whether management and staff at any of these sites, or the Gatwick HQ, are affected by Third Point's call for greater efficiency and asset sales remains to be seen and will again initially depend on how Nestle's board in Vevey, near Geneva, responds to Third Point's list of proposals". L'Oreal rose as much as 4.8 percent in Paris trading. Analysts also speculate it could sell its US frozen food business.

  • Eleanor Harrison