The Morning Brief: Third Point Discloses Big Bet on Nestle
The hedge fund firm says the world’s largest food business has room for improvement.
Dan Loeb’s Third Point has identified a new, significant activist target. The hedge fund firm disclosed it made a more than $3.5 billion investment in Nestle, the world’s largest food business. It owns about 40 million shares through its hedge funds and a special purpose vehicle it raised to do this deal.
“Despite having arguably the best positioned portfolio in the consumer packaged goods industry, Nestle shares have significantly underperformed most of their U.S. and European consumer staples peers on a three-year, five-year, and ten-year total shareholder return basis,” states the firm’s letter to investors. “One year returns have been driven largely by the market’s anticipation that with a new appointed CEO, Nestle will improve.”
Third Point stresses it is rare to find a business with Nestle’s quality and that there are “so many avenues for improvement.” The hedge fund firm promises to “play a constructive role” to encourage change with a greater sense of urgency. It calls on the company to improve productivity, return capital to shareholders in the form of stock buybacks, re-shape the portfolio, and monetize its L’Oreal stake. Shares of Nestle jumped 4.3 percent, to close at $85.65.
Shares of hedge fund favorite Pandora Media jumped more than 2 percent, to close at $8.46, on reports that the CEO of the streaming music company may leave and that an analyst at an obscure firm made positive remarks. Earlier this month SiriusXM agreed to provide $480 million in financing to the company. Shares of Pandora are down more than 77 percent from their February 2014 high. At the end of the first quarter, Corvex Management was the second-largest shareholder, while the stock was its third-largest U.S. long. Other top-ten holders included Eminence Capital and Citadel.
Shares of Valeant Pharmaceuticals International surged again, jumping another 8.1 percent, to close at $17.08. It is now solidly in the black for the year with a 15 percent gain. It is also up more than 40 percent since mid-June.
Robert Soros is resigning as deputy chairman and president of Soros Fund Management to manage his own money at the $26 billion family office, according to Bloomberg. He is reportedly creating a separate unit, Soros Capital, which will specialize in illiquid investments, according to the report. Robert is the oldest of George Soros’ five children. “As opposed to the past when everything was under one umbrella and under the strong force of the patriarch, Soros Fund Management will now transition to a model that provides customized solutions for the different needs of the Soros family and the Soros foundation clients,” Robert Soros told Bloomberg.