Nestlé plans €18bn buyback after Third Point reveals stake

Activist hedge fund investor forces Swiss group to reverse buyback policy

Nestlé says it will pursue growth strategy. Photograph: Reuters

Nestlé says it will pursue growth strategy. Photograph: Reuters

 

Switzerland’s Nestlé has announced a share buyback programme worth up to 20 billion Swiss francs (€18.37bn), just days after US activist investor Dan Loeb revealed that his hedge fund Third Point had accumulated a 1.25 per cent stake in the group.

Nestlé said on Tuesday that: “In the context of low interest rates and strong cash flow generation, share buybacks offer a viable option to create shareholder value”.

The share buyback programme is expected to be completed by June 2020.

Chief executive Mark Schneider is reversing Nestlé’s policy on buybacks just days after being urged to do so by Third Point. The food maker hasn’t had a repurchase programme since 2014, and Mr Schneider said in February in his first public appearance as chief executive that buying back stock is a lower priority than reinvesting in Nestlé’s business and paying dividends.

The Swiss company’s reaction echoes the strategy shift Unilever announced in April after Kraft Heinz’s failed takeover bid.

The Swiss group said the decision had been taken as part of a review of its capital structure started earlier this year. As a result of that review, it had decided to focus future investment spending on high-growth food and drinks categories such as coffee, petcare, infant nutrition and bottled waters.

It would also focus on high growth economies.

The statement added: In line with the company’s nutrition, health and wellness strategy, it will also pursue growth opportunities in consumer healthcare.”

Earlier this week, Third Point accused the Swiss group of failing to adapt to a slower growth environment and remaining “stuck in its old ways”. Third Point put forward recommendations it said would “dramatically improve both the growth profile and earnings power of the company”.

Third Point’s stake is worth about $3.5 billion.

However, Mr Schneider, who took over as Nestlé’s chief executive in January, had already hinted at broad strategic changes, which could include a formal profit margin target.

In April, Mr Schneider said investors expected “improved” combinations of profit margins and sales growth. “We got the message,” he said. “We’re certainly determined to move in that direction.”

Copyright The Financial Times Limited 2017