Nestle capital plan only the start of new leadership’s larger shake-up idea

Nestle plan hailed as only the start of Schneider's shake-up

Nestle‘s plan to shore up its capital structure, announced only days after being thrust into the spotlight by activist shareholder Third Point, was received by investors as a precursor to bigger changes under the company’s new leadership.

Shares in the world’s largest foodmaker rose as much as 2 percent on Wednesday, close to the record high touched on Monday after the New York-based hedge fund disclosed a $3.5 billion stake and urged Nestle to buy back shares, set a target for margin growth and shed non-core assets including its stake in L’Oreal.

Investors did not have to wait long for a response, with Nestle announcing late on Tuesday that it would launch a 20 billion Swiss franc ($20.8 billion) share buyback programme while leaving room for near-term acquisitions.

Nestle also said it would continue adjusting its portfolio and assess opportunities to boost profit margins, stopping short of setting a firm target. It added that the measures were the result of a review instigated at the start of the year after Mark Schneider took over as chief executive.

The moves were welcomed by stakeholders large and small.

“This is a new era for Nestle and I’m extremely positive on the prospects for internal and external growth,” said Carine Menache, who runs a Monaco investment firm that owns Nestle shares. She and UBS analysts said the buyback should lift earnings by 6 percent, while increased merger and acquisition (M&A) activity could provide a further boost.

“Nestle may have a poor track record for M&A, but the new CEO, Schneider, is now in charge and he has a great track record,” she added.

Reaching a 19 percent operating margin, the midpoint of Third Point’s recommendation, would lift earnings by another 8 percent, according to UBS, which said Nestle shares now offered the greatest opportunity for growth of all the European packaged goods companies it covers, bolstering its “buy” rating.

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