(MENAFN- Gulf Times) Danone became the latest European company to attract an activist investor as the French yogurt maker struggles to boost sales in an industry reeling with fickle consumer demand.
Corvex Management, a New York-based activist fund run by Keith Meister, has built a stake worth about $400mn, according to people familiar with the matter. The news sent the stock up as much as 3% in Paris, the most in France's benchmark CAC 40 Index.
Activist investors increasingly have European companies in their sights, and Dan Loeb's purchase of a stake in Nestle has shown that not even the region's biggest company is immune. An improved economic outlook and declining political risks in the region present attractions to funds that have seen targets in the US start to dry up.
At Danone, Corvex will put pressure on chief executive officer Emmanuel Faber to deliver on his sales and profitability targets, wrote Andrew Wood, an analyst at Sanford C Bernstein. 'Danone is very inefficient and has great scope for margin improvement, he said.
The purchase would be Corvex's second high-profile European investment in as many months. The fund teamed up with investment firm 40 North last month to increase their stake in Clariant to more than 10%, part of an effort to scupper the Swiss chemical company's $6.7bn takeover of Huntsman Corp.
Corvex believes Danone stock will rebound if management improves operations and successfully positions the business to benefit from the health and wellness trend, the people said. The firm doesn't currently plan to publicly push for management changes or launch a proxy fight, though that stance could change, they also said.
Representatives for Corvex and Danone declined to comment.
Announcements of cost cuts and other reshuffles tend to follow after activists announce their targets. A month after Nelson Peltz said he had a stake in Danone in 2012, the company revealed a plan to reduce costs by about €200mn ($235mn). Just days after Loeb's stake in Nestle became public, the KitKat maker said it would buy back 20bn francs ($20.6bn) of shares. In both cases, the companies denied the moves were related to activists.
Another European consumer-goods giant, Unilever, is also sharpening its focus on profitability after fending off a bid from Kraft Heinz Co earlier this year. While not an activist fund, Kraft Heinz is backed by investment firm 3G Capital, which is known for its aggressive pursuit of shareholder returns. In the US, meanwhile, Peltz's Trian Fund Management last month began a proxy fight to win a board seat at Procter & Gamble Co.
Danone CEO Faber is trying to rejuvenate the company after last year's like-for-like sales growth was the weakest since 1997. While the $10bn purchase of soy-milk maker WhiteWave Foods Co is brightening earnings prospects, weakness in yogurt has weighed on a business that generates half the company's revenue.
Shares of Danone have declined about 5% in the last 12 months, valuing the business at about €45bn. The stock currently trades at 23 times earnings, compared with 27.3 at Nestle SA and 24.5 at Unilever, according to data compiled by Bloomberg.
Investors in the French company may benefit from takeover speculation. Danone would 'make sense as a target for Kraft Heinz because it is 'a relatively cheap under-earning asset, Exane BNP Paribas analysts including Jeff Stent wrote in a note in June. Other possible suitors include Pepsico and Coca-Cola Co. The longstanding wisdom that Danone is immune from a take-out is no longer valid amid the shift in the French political landscape, the analysts wrote.
Danone would probably try to quash any bid by Kraft with the backing of the French government, while Coca-Cola would have antitrust issues with a takeover of Danone, and it would also be a big strategy shift, Bernstein's Wood wrote.
Meister, who previously worked for billionaire activist investor Carl Icahn, formed Corvex at the end of 2010. As of the end of March, the investment firm also had active positions in oil exploration and production company Energen Corp, online radio firm Pandora Media, and Yum! Brands, the parent company of KFC and Taco Bell, according to regulatory filings.
'It's incumbent on all of us as investors to be activist, said Nicholas Melhuish, head of global equities at Amundi Asset Management. 'Activists often just end up verbalising a debate that has been going on behind the scenes between other investors and the company, but they do it in a much more dramatic way.
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