Nestle vs. Loeb

[Guest]

Nestle (+1.79%) is caving into the schoolyard bully (that would be activist investor Daniel Loeb) and accelerating its $20.8 billion share buyback plan over the next three years. The move may artificially boost Nestle’s stock price, but by taking out debt to do so, it could hurt its credit rating. 

Ever since Loeb planted his 1.3% stake in Nestle back in June, it has been quick to meet the hedge fund manager’s demands. 

• Accelerate share buybacks? Check.
• Set margin targets? Nestle also announced yesterday it would raise operating margins from 15.8% this year to 18.5% by 2020 (Unilever hovers around 20%).
• Growth through M&A? Nestle just purchased Blue Bottle ($425 million)—the cold brew coffee your hipster friend recommended—along with fresh food startup, SweetEarth.

Nestle’s one sticking point has been its 23% stake in L’Oreal. Loeb wants to ditch the haircare brand, but Nestle’s 12% YoY return for the last 42 years has kept the decision a simple one: lather, rinse, repeat.

[Guest]

Hershey is eyeing Nestle’s chocolate business…along with many other bidders.