Third Point Is Said Unlikely to Nominate Directors to Nestle

(Bloomberg) -- Dan Loeb’s Third Point is unlikely to nominate directors to the board of Nestle SA, according to a person familiar with the matter, after the New York-based hedge fund said it was encouraged by the turnaround underway at the world’s largest food company under Chief Executive Officer Mark Schneider.

Third Point is pleased with how Nestle has started disposing of non-core assets, including its U.S. confectionery business, with plans to use proceeds for mergers and acquisitions, it said in letter to investors Thursday. It also lauded the 11 billion Swiss francs ($11 billion) in capital Nestle has returned to investors by repurchasing shares.

The letter didn’t mention Third Point’s intentions when it came to Nestle’s board. Representatives for Third Point and Nestle declined to comment.

Third Point first took a stake in Nestle in 2017 and Loeb had called on the company last July to adopt more radical changes to boost returns, such as considering splitting into three units. He also renewed his calls for it to sell its stake in cosmetics company L’Oreal SA.

Vevey, Switzerland-based Nestle is now on track to potentially earn 5 Swiss francs per share in 2020 after a "pivotal" 2018, Third Point said.

"We believe Nestle can sustain this new momentum beyond 2020, as the company continues to sharpen its strategy, better align its portfolio around key categories, and improve its organization to become more agile," Third Point said. "Changing a company as large and complex as Nestle was always going to take time, but it’s becoming increasingly clear that real change is underway."

Nestle will sell its Herta lunch-meat business, accelerate share buybacks and appoint two new independent directors to its board at its annual meeting in April, the company announced last week.

United Technologies

Third Point also addressed its investment in United Technologies Corp., saying the company has settled investor nerves about its plan to split into three units, after its initial announcement caused confusion and uncertainty.

"We believe management has largely rectified this by shortening the time to separation and providing better disclosure on Rockwell Collins’s free cash flow generation," Third Point said.

Third Point also believes that management is "receptive" to its suggestion to "explore a highly value-creating transaction" for its Carrier division, the firm said.

2018 Losses

Third Point lost 11.3 percent on its investments in 2018, only the second time it’s reported a double-digit decline, according to the letter.

The hedge fund said that an 11.9 percent decline in the fourth quarter contributed to those declines. Its excessive exposure to certain long-term unhedged bets and a risk arbitrage position in NXP Semiconductors NV accounted for much of the negative returns.

"Although our performance was disappointing, we took the opportunity to learn from our mistakes, reflect on where our competitive advantages lie, adjust our risk management, and generally improve our processes to drive better results.," Third Point said in the letter.

Third Point reduced its net equity exposure in the fourth quarter and believes that its moderate positioning is appropriate for the current environment despite a rally in the first weeks of 2019.

Third Point, founded by Loeb in 1995, had $14 billion in assets under management at Dec. 31, according to the letter.

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