Insight: Ripe for change? Activist investors eye food, consumer goods

Korn Ferry

11/09/2023 06:00

By Richa Naidu
       LONDON, Sept 11 (Reuters) - In early 2021, investment
management firm Artisan Partners sent an open letter to an
incoming member of Danone's  DANO.PA  board, saying it had built
a stake of more than 3% in the French food giant. "On almost
every measure, Danone's performance has lagged," Artisan said,
and called for change. 
    About a month later, Danone's then-CEO and chairman,
Emmanuel Faber, was ousted and its board overhauled in a high
profile victory for shareholder activism. 
    Today, Artisan, which manages about $146 billion, is
Danone's top shareholder with a 7% stake, according to LSEG
data. David Samra of Artisan's International Value team, which
seeks investment opportunities in under-valued businesses, said
more changes may be coming.
    "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." 
    Danone, the maker of Activia yogurt and Evian bottled water,
did not respond to a request for comment.
    The company's stock has declined around 13% in the past two
years. Unilever  ULVR.L  and other large rivals have also
underperformed the EURO STOXX Consumer Products and Services EUR
Price index  .SXCPP  over the past year. 
    Reuters spoke to four shareholders that have launched
activist campaigns who said that some big consumer goods
companies are ripe for executive changes after failing to
impress. The sources declined to name specific companies, in
some cases because they work with them.
    Data shared exclusively with Reuters by consultancy Alvarez
& Marsal also showed that, in the first seven months of the
year, the consumer goods industry was the most targeted by
activist investors. 
    Some 236 campaigns were launched globally between January
and July, the most the industry has seen in at least half a
decade, Alvarez & Marsal said. 
    That represented a fifth of all activist pushes across all
sectors during that period. Alvarez & Marsal did not identify
the targets of the campaigns nor say what they were about.
   
    Many large consumer goods companies generally hold low
levels of debt and are cash generative, said André Medeiros,
managing director and Alvarez & Marsal's EMEA consumer and
retail leader. Their scale also often offers activist
shareholders multiple levers to pull - including cost cutting,
brand divestments, operational improvement and the adoption of
new technology - as they look for growth and higher margins, he
added.
    Billionaire activist fund manager Nelson Peltz took a seat
on Unilever's board in July 2022, having praised the maker of
Dove soap and Ben & Jerry's ice cream for its strong brands and
international footprint. His New York-based fund Trian is now
the company's fourth-biggest shareholder, according to LSEG
data. 
        Artisan's Samra said Peltz's presence at Unilever gave
him "confidence". Samra's fund has built a roughly $900 million
stake in Unilever, having bought shares during the second
quarter when the price declined, Artisan told Reuters. The stake
would make it Unilever's 13th largest shareholder, the LSEG data
said. 
    "We're not active with Unilever. We don't need to be because
Nelson Peltz is doing it," Samra said. 
    Peltz is known for his interest in consumer-oriented firms
and for his role in reshaping H.J. Heinz as well as engineering
the break up of Cadbury Schweppes. Shortly after his arrival on
the board, Unilever appointed a former Heinz executive as CEO.
    Unilever's food business has struggled with slow growth for
years, fuelling speculation it could be spun off. Unilever and
Trian declined to comment for this story.   
   
    'ADVOCATING FOR MANAGEMENT CHANGE'
    Gianluca Ferrari, founding partner of investor Clearway
Capital, said his firm had some consumer companies on its radar
but declined to name them. The Frankfurt-headquartered fund does
not publicly disclose its assets under management.
    With inflation running high in many economies, Clearway is
looking for companies with strong brands and potential pricing
power that would help to insulate them from it.
    "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.
    Clearway last year pushed for change at sports supplement
maker Glanbia  GL9.I . Since Clearway's letter to Glanbia's
board in May 2022 calling for a break-up of the company to help
unlock value, the Irish company's share price has jumped about
39% and its longtime CEO plans to retire.
    Glanbia did not respond to a request for comment.
    At the end of 2020, Bluebell Capital also bought a stake in
Danone and, according to media reports, joining Artisan in
lobbying for the removal of then-chairman and CEO Faber.
Bluebell declined to comment on its engagement.
    "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 declined to confirm if Bluebell, which does not disclose
its assets under management, still held a stake in Danone.
    Ceron said that, although boards had become quicker to
tackle underperformance, he saw a number of situations among
consumer staples companies where things could 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.  
        
    ROOM FOR IMPROVEMENT
    Several top industry executives - including at Diageo
 DGE.L , Reckitt  RKT.L , Danone  DANO.PA  and Kraft Heinz
 KHC.O  - announced over the past year they are stepping down.
    In some cases, the departures have been driven by the
executive's desires for a change of lifestyle in the wake of the
global pandemic, said Andrew Hayes, global head of executive
search firm Russell Reynolds Associates' consumer practice.     
  
    Some companies, however, felt that the business environment
in the wake of the pandemic - characterised by supply chain
issues, squeezed margins and slow growth - required a new kind
of leadership, according to John Long, North America retail
sector leader for rival search firm Korn Ferry.     
    "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.
    Unilever's former CEO Alan Jope departure's after 38 years
at the company was announced in September 2022, months after
Peltz joined the board in July. Unilever's longtime finance
chief, Graeme Pitkethly, is also exiting by May 2024 after more
than two decades at the company.
        Peltz did not respond to a request for comment on
whether he influenced Jope's departure.
    In October, Reuters reported that Peltz had approached
former CEOs of consumer goods companies as candidates for the
Unilever top job. When Hein Schumacher was appointed, Peltz said
he had been "impressed by his leadership skills and business
acumen" when he had known him at Heinz.
    Peltz in 2006 also won two seats on the board of H.J. Heinz
- now Kraft Heinz - after waging an acrimonious, costly proxy
battle.
    Reflecting on the experience, Heinz's then-CEO, Bill
Johnson, 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."

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Activist campagins pick up, post-pandemic    https://tmsnrt.rs/45ghbTy
Consumer good firms underperforms index    https://tmsnrt.rs/3QItcwA
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 (Reporting by Richa Naidu; Editing by Matt Scuffham and Daniel
Flynn)
 ((richa.naidu@tr.com; Follow me on Twitter https://twitter.com/Richa_Writes;
 +44 755 755 9587;))