Nestlé's relatively new Chief Executive Officer Mark Schneider has shown he knows how to buy. Now he needs to sell too.
Schneider, who was something of a deal junkie when he ran Fresenius, wasted no time in his first year at Nestlé, snapping up the likes of supplement maker Atrium Innovations and Blue Bottle Coffee.
He also took his first step in reshaping the global group's disparate portfolio, offloading the US confectionery business for a good price.
But he needs to go further. Organic sales growth in 2017, at 2.4%, was the weakest in more than 20 years.
It would be an easy win for shareholders if he were to whittle away the poorer or less-important performers to focus on the core business. That would bring in a load of cash, and if supplemented with mid-sized acquisitions of fast-growing businesses, would also put Schneider in a much better position of achieving his target for mid single-digit growth by 2020.
Nestlé said on Thursday it would explore options for its tiny Gerber life assurance business. That's in line with its strategy of offloading assets representing 10% of group sales. Deals so far mean its tackled 2.5 to 3% of sales.
But the group has several joint ventures, including with Lactalis in chilled dairy, with General Mills in cereals, and with R&R in ice-cream. All fall outside of Nestlé's priority areas, such as pet care, coffee, infant nutrition and water, and so are ripe for corporate activity.
Meanwhile, Nestlé's foray into skin health looks increasingly marginal. The company wrote down the value of this unit, a possible prelude to a sale.
L'Oreal Stake
Still, there is one potential divestment that stands out: Nestlé's stake in L'Oreal.
Nestlé won't renew an expiring agreement with the Bettencourt family, which prevents either side from raising their stake. Nestlé said Thursday it won't increase its holding, so ruling out a bid for the cosmetics group.
And with the Bettencourts soon free to increase their stake, they're potential buyers for some of Nestle's shares. So is L'Oreal, which said last week it was ready to snap it up.
Taking these steps will leave Nestlé, which is already highly cash generative and under-leveraged, with a whopping pile of funds. The L'Oreal investment alone is worth €23 billion. That's before any other disposal proceeds come in.
The question is what Schneider does with the money. It’s a nice problem to have, and gives him options in a sluggish environment.
But with Dan Loeb's Third Point having amassed a $3.5 billion stake, there will be demands for any surplus funds to be returned to shareholders.
Schneider hasn't ruled out large scale M&A, and although remote, there is a danger he deviates from his path so far of buying smaller, fast-growing companies to bigger, riskier deals.
He has set out a sensible strategic plan, and embarked on many of courses of action urged by Loeb. But Nestle has underperformed Unilever over the past year. Schneider has the opportunity to be much more radical. With an activist snapping at his heels, he should take it.
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