In a letter sent on Nov. 19 to Michel Landel, lead independent director at Danone, Bluebell also urged the dairy giant to split its chairman and CEO roles, the business website said.
Danone, which has seen its stock price languish in recent years compared to other European food companies, is the latest to come under activist pressure. In 2018, activist investor Daniel Loeb criticized Nestlé, the world’s largest food company, for not moving fast enough to improve its operations.
Just a few years ago, Nestlé found itself under fire from Loeb’s hedge fund Third Point, which pushed it to “become sharper in articulating its strategy, bolder in re‐shaping its portfolio, and faster in overhauling its organization.” Since then, Nestlé has jettisoned segments of its business like its U.S. candy and ice cream operations while expanding its reach into better-for-you brands and products that focus more on personalized health.
Now, Danone is facing its own battle with an investor who is looking for change at the maker of Activia yogurt, Horizon organic milk and plant-based options like So Delicious and Silk.
“The underperformance of Danone’s share price has been driven, in our view, by a combination of poor operational track record and questionable capital allocation choices,” Bluebell wrote in the letter cited by MarketWatch. The letter went on to note how since Faber took over in 2014, Danone has delivered total shareholder returns of 21% compared with 56% for the Stoxx Europe 600 Food & Beverage, 97% for Nestlé and 101% for Unilever. Bluebell said this “fails to reflect the quality of the group assets.”
Danone is a multibillion dollar food giant with a deep bench of yogurt and milk options. It also has a huge presence in plant-based offerings, which it doubled down on with its $12.5 billion purchase of WhiteWave in 2017.
While Danone has a dominant position in these segments, competition is growing from General Mills’ Yoplait, Greek yogurt maker Chobani, Lactalis’ Siggi’s and Stonyfield lines, as well as countless startups. Danone also has a large presence in water, but it’s an ultra-competitive category with scores of big-name and private-label brands. After a prolonged period of underperformance, Nestlé announced last summer it was considering the sale of the majority of the North American Nestlé Waters business unit.
To be sure, Danone has an enviable roster of brands that populate large swaths of the dairy aisle. But its stagnant stock price has attracted the attention of an activist intent on putting it on a pathway to faster growth. Past involvement by activists have proven fruitful for the targeted companies. Nestlé’s stock price has surged since Loeb first got involved. Campbell Soup, which also was a target of Loeb in 2018, and Hain Celestial have sold off parts of their businesses and seen their shares rise since the activist came on the scene.
In a statement sent to Food Dive, Danone said it doesn’t comment on rumors but noted that it values “constructive dialogue with all our shareholders.” The statement noted a series of steps the company has undertaken recently to reshape the business while noting that between 2014 and 2019 Danone posted organic growth averaging 3.1%. “The leadership team of Danone is highly focused on delivering long-term sustainable value for our shareholders,” the French company said.
Danone has shown in recent months that it is aware of its challenges. In November, for example, it announced it was cutting as many as 2,000 jobs and planned to return the company to profitable growth in less than 12 months. The dairy giant said it aimed to generate about €1 billion ($1.2 billion) in savings by 2023 that will be partly reinvested in supporting growth and improving margins. Danone also is conducting a strategic review of its portfolio of brands, SKUs and assets to allow it to achieve its 3% to 5% revenue growth target.
But so far these and other executive moves don’t appear to be quick enough for Bluebell, putting the pressure on Danone to act fast or face even more unwanted pressure by outside investors.
