Daily Management Review

Investors With An Activist Bent Are Interested In Consumer Goods And Food Industries


Early in 2021, investment management company Artisan Partners informed a prospective board member of Danone that it had grown its holdings in the French food behemoth to more than 3%. Danone's performance has fallen short on practically all counts, according to Artisan, who demanded improvement.
A month later, Emmanuel Faber, Danone's then-CEO and chairman, was fired and the company's board was reorganised in a prominent success for shareholder activism.
According to LSEG data, Artisan, which oversees roughly $146 billion, is currently Danone's largest shareholder with a 7% holding. More changes might be on the horizon, according to David Samra of Artisan's International Value team, which looks for investment possibilities in undervalued companies.
"I wouldn't be surprised if there's more turnover at the very senior levels," Samra told Reuters, noting the "very mediocre" performance of Danone shares. "If somebody is not performing, we will get new people."
An inquiry for response was sent to Danone, the company behind Activia yoghurt and Evian bottled water, but they did not answer.
The shares of the corporation has decreased by almost 13% over the last two years. Over the past year, Unilever and other significant competitors have underperformed the EURO STOXX Consumer Products and Services EUR Price index.
According to four activist shareholders who talked with Reuters, some large consumer goods businesses are ready for management changes after performing poorly. In several situations, the sources declined to name specific businesses since they collaborate with them.
The consumer goods sector was the one most frequently targeted by activist investors in the first seven months of the year, according to data that consultant Alvarez & Marsal shared exclusively with Reuters.
Between January and July, 236 campaigns were launched internationally, which is a record for the sector going back at least five years, according to Alvarez & Marsal.
That accounted for one-fifth of all activist campaigns launched during that time period in all industries. Both the targets and the subject matter of the campaigns were not disclosed by Alvarez & Marsal.
According to André Medeiros, managing director and head of consumer and retail for Alvarez & Marsal in EMEA, many significant consumer products companies often have low levels of debt and generate cash flow. Their size also frequently gives activist shareholders a variety of levers to use in their pursuit of growth and improved margins, such as cost reduction, brand divestments, operational improvement, and the adoption of new technologies, he continued.
In July 2022, billionaire activist fund manager Nelson Peltz joined the Unilever board after praising the company for its well-known brands and global reach, including Ben & Jerry's ice cream and Dove soap. According to LSEG data, his New York-based fund Trian is now the fourth-largest shareholder in the business.
Samra of Artisan claimed that Peltz's employment at Unilever provided him "confidence." According to Artisan, Samra's fund purchased Unilever shares when the price was falling during the second quarter, resulting in a nearly $900 million investment. According to the LSEG data, the position would make it Unilever's 13th largest shareholder.
"We're not active with Unilever. We don't need to be because Nelson Peltz is doing it," Samra said.
Peltz is renowned for his involvement in businesses that cater to consumers, for helping to reshape H.J. Heinz, and for orchestrating the breakup of Cadbury Schweppes. A former Heinz executive was named CEO of Unilever soon after he joined the board.
Years of weak development in Unilever's food division have fueled rumours that it may be split off. Trian and Unilever declined to comment for this article.
Investor Clearway Capital's founding partner Gianluca Ferrari acknowledged that his company was keeping an eye on a few consumer startups but would not identify them. The Frankfurt-based firm doesn't make its managed assets available to the public.
Clearway is looking for businesses with strong brands and potential pricing power that would help buffer them from inflation, which is running high in many economies.
"If we feel the board and management are underpricing their products, that's a perfect reason for us to go in and take a very close look at a business with the intention of engaging," Ferrari said.
"There is one situation that we're having a very close look at where I think advocating for management change would probably be the right thing to do," he added.
Last year, Clearway campaigned for change at the manufacturer of sports supplements Glanbia. The Irish company's share price has increased by nearly 39% since Clearway's letter to Glanbia's board in May 2022 urging a break-up of the business to help unlock value, and its longtime CEO has announced his intention to leave.
There was no comment available on the issue from Glanbia.
Media reports state that around the end of 2020, Bluebell Capital also acquired a stake in Danone and joined Artisan in attempting to have then-chairman and CEO Faber fired. Regarding its engagement, Bluebell refuses to comment.
"Danone was significant because there is less of a history of activism in consumer staples in Western Europe, and it was a CEO change led by shareholders -- there was probably too much complacency from the board," Nicolas Ceron, a portfolio manager at Bluebell, told Reuters.
He opted not to confirm whether Bluebell, which conceals the ownership of the assets it manages, still owned a share in Danone.
Ceron stated that while boards had been more prompt in addressing underperformance, he recognised a number of areas where things at consumer staples firms might be improved.
"There are more opportunities in global consumer staples for activists over the coming years, but the timing has to be right," Ceron said. He did not cite specific companies.
Over the previous year, a number of prominent business leaders, including those at Diageo, Reckitt, Danone, and Kraft Heinz (KHC.O), announced their resignation.
According to Andrew Hayes, worldwide head of executive search agency Russell Reynolds Associates' consumer practise, the CEO's desire for a lifestyle change in the wake of the global epidemic has played a role in some of the departures.
According to John Long, the North American retail sector leader for competing search company Korn Ferry, several businesses believed that the post-pandemic economic environment, which was marked by supply chain problems, squeezed margins, and slow growth, required a new sort of leadership.
"The CEOs that were able to navigate a crisis like the pandemic are not necessarily the same people who can foster growth," Long said. He did not identify specific executives nor disclose the nature of his work with consumer companies.
In September 2022, months after Peltz joined the board in July, Unilever's previous CEO Alan Jope announced his resignation after 38 years with the organisation. Graeme Pitkethly, Unilever's veteran finance director, will leave the company by May 2024 after working there for more than two decades.
There were no comments available from Peltz  about whether he was responsible for Jope's departure.
According to Reuters, Peltz approached past CEOs of consumer goods businesses as potential contenders for the Unilever CEO position in October. Peltz stated that while working with Hein Schumacher at Heinz, he was "impressed by his leadership skills and business acumen".
In 2006, Peltz also succeeded in gaining two seats on the board of H.J. Heinz, which is now Kraft Heinz, by engaging in a bitter and expensive proxy fight.
Heinz's former CEO, Bill Johnson, reflected on the experience and told Reuters: "Nelson turned out to be a great contributor even though there were times we disagreed on issues and sometimes it got rather rancorous."
"We all like to think as CEOs that we're above that," he said. "But there's no company in the world that's safe."