Canada's Competition Bureau has approved the planned consolidation of DuPont (DD) and The Dow Chemical Co. (DOW), which was the last major approval needed for the $140 billion merger to move forward. The Competition Bureau gave the deal the green light because the companies had agreed to divest certain business units to satisfy European Union regulators. DuPont sold its crop protection business and associated research to FMC Corp. (FMC), and Dow is selling its acid copolymers and ionomers business to SK Global Chemical Co. Competition Minister John Pecman said, "This transaction between two multinational giants was of interest to Canadian farmers and those involved in this major economic sector. The agreement reached today ensures that consumers and businesses continue to benefit from a dynamic marketing place, which offers innovative solutions, increased choice, and competitive prices." Dow and DuPont issued a joint statement indicating that Canada's approval will not require them to make additional divestments. Daniel Loeb of Third Point has challenged the idea of three spinoffs, arguing that splitting DowDuPont into six new companies would create more value for shareholders. The hedge fund manager has demanded that DowDuPont split the specialty products business into four publicly traded companies. Meanwhile, Glenview Capital, a separate New York hedge fund, also demanded changes to the spin-off plan in a June 27 letter to its investors.
Nestlé's (NSRGY) plan to boost its capital structure, announced just days after being thrust into the spotlight by Daniel Loeb's Third Point, is being viewed by investors as a precursor to bigger changes under the company's new CEO, Mark Schneider. Shares in the company increased up to 2% on June 28, close to the record high reached on June 26 after the hedge fund revealed a $3.5 billion stake and urged the foodmaker to buy back shares, establish a target for margin growth, and divest non-core assets including its stake in L'Oréal. Nestlé announced late June 27 that it would launch a 20 billion Swiss franc ($20.8 billion) share buyback program. "This is a new era for Nestlé and I'm extremely positive on the prospects for internal and external growth," said Carine Menache, who runs a Monaco investment firm that owns shares in the company. She says the buyback should lift earnings by 6%, while increased merger and acquisition activity could provide a further lift. "Nestlé 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 notes. Topping a 19% operating margin, the midpoint of Third Point's recommendation, would boost earnings by another 8%, according to UBS, which described Nestlé's plan as "responsive but not reactionary" to Third Point. "We think this sends a strong message to the markets—expect more to come," UBS said. Nestlé did not address its stake in L'Oreal.
Deckers Outdoor Corp. (DECK) has been warned to sell itself at a favorable valuation or face a fight to roll the entire board and bring in new management. In a June 27 letter, Marcato Capital Management's Mick McGuire wrote, "While we typically seek to work constructively with boards to implement change, we view this situation differently. If, for any reason, the process fails to produce a desirable outcome, we believe a new management team led by a new board of directors will be much more likely to succeed in achieving the revenue and expense opportunities at Deckers." He noted that the footwear company has failed to achieve growth in earnings and stockholder value and complained that investor recommendations for corrective actions have been "consistently ignored." McGuire also expressed concern about the lack of shareholder representation on the board and its directors' lack of experience in mergers and acquisitions. According to Marcato, which owns 6% of Deckers, at least six other investors have demanded that the board pursue a sale. Among them is Red Mountain Capital Partners, which holds a 3.3% stake. Deckers responded, "We appreciate the views of our stockholders. Our board of directors will continue to take actions that are in the best interests of the company and all stockholders."
Just days after Dan Loeb's Third Point announced a 1.25% stake in Switzerland's Nestlé (NSRGY), the company has announced a share buyback program worth up to 20 billion Swiss francs ($21 billion). On June 27, the company said, "In the context of low interest rates and strong cash flow generation, share buybacks offer a viable option to create shareholder value." The share buyback program is expected to be completed by June 2020. Nestlé said the decision stems from a review of its capital structure that began earlier this year, and as a result, it had decided to focus future investment spending on high-growth food and drinks categories, such as coffee, pet care, infant nutrition, and bottled waters, and on high-growth economies. Third Point has said the company is failing to adapt to a slower growth environment and remaining "stuck in its old ways," but CEO Mark Schneider has hinted at broad strategic changes, which could include a formal profit margin target.
On June 27, shareholder Allan Gray said it had lost faith in Group Five's board to act in the best interest of the firm. More than 10 executive and non-executive directors at the South African construction company have resigned since February, with no reasons provided. Also in February, CEO Eric Vemer resigned after Group Five posted its first six-month loss in 11 years due to a 255 million rand ($19 million) settlement with the South African government. "They have been unable to regain our trust following numerous meetings and engagements," said Allan Gray Chief Investment Officer Andrew Lapping, adding that the board's response after the resignations had been "unsatisfactory." The fund manager, which owns 25% of Group Five, informed the company in May of its request to call an extraordinary general meeting to reconstitute the board, and five non-executive directors resigned on June 23 ahead of the July 24 meeting. Allan Gray has proposed that former Group Five CEO Michael Upton be appointed to the new board, along with four other nominated members. Lapping said the fund manager is seeking a team with "continuity and institutional memory, sensitivity to historical industry behavior and execution of the company's strategy to deliver across the full infrastructure lifecycle and maximum shareholder support." Group Five's current board opposes Upton's appointment and Allan Gray's "requests for an unbundling of Group Five if it does not create value for all stakeholders."
Daniel Loeb's Third Point is demanding, among other things, that Nestlé SA (NSRGY) review its €24.4 billion ($27.4 billion) holding in L'Oréal SA (LRLCY). Shares in the Swiss food giant climbed 4% on June 26 in response to news that the hedge fund had acquired a $3.5 billion, or 1.25%, interest, which will exert pressure on CEO Mark Schneider to take action. For decades, Nestlé and France's Bettencourt family, heirs of L'Oréal founder Eugène Schueller, held roughly equal stakes in the cosmetics giant. They have long resisted pressure to decouple, although critics argue the companies lack common strategic goals and would be better untethered. Observers point out several ways in which Nestlé could further cut or rid itself completely of L'Oréal shares. They believe an outright sale would prove difficult given the size of its stake, currently worth $27.4 billion. However, some of the provisions in Nestlé's agreement with the Bettencourt family governing what it can do with its position expired in 2014; for example, Nestlé, no longer is obliged to offer the shares first to the Bettencourts if it decides to sell them. Loeb has suggested that Nestlé could offer the L'Oréal shares in exchange for Nestlé ones; but observers say a more likely option would involve L'Oréal simply buying back Nestlé's stake.
Siemens CEO Joe Kaeser said in a recent interview that he is working to fend off activist investors and that he is increasingly wary of striking the right balance between financial results and building for the future. "You need to keep the difference between the short-term aspect and the long-term aspect very close," he remarked. "The wider it gets, the more activists you get in saying 'Hey, this is a performance gap and I want this now.'" The German engineering company has so far escaped being a target as investors like Third Point and Elliott Management eye Europe and beyond. Kaeser has spent his four years at the helm simplifying the conglomerate's byzantine structure, which has helped to lift its stock price 49% since he took over. Among other strategies, he has discussed adopting more of a holding-like structure that gives autonomy to units while still being centrally managed. Kaeser said the changes at Siemens are important, as is creating an "ownership culture" under which employees buy stock and get a stake in the company's future. "What I would do is say 'Look, if you want this, fine. Do your short-term thing. If you make a lot of money with that, you get taxed higher,'" he said. "You cannot build long-termism, stakeholders, societal inclusiveness, into that purpose of ownership. So there's got to be some sort of counter, some sort of balance to that."