Nestle Fawdon factory_resized

Unilever has already felt the squeeze from demanding investors this year and this week it was Nestlé’s turn to feel pressure from the market to become more aggressive.

Over the weekend, it emerged US investor Daniel Loeb’s Third Point hedge fund had built a $3.5bn stake and was calling for “bold action” at the “staid” group. Loeb accused Nestlé of churning out “meaningful underperformance versus peers” and called for the Swiss group to improve margins, re-purchase shares, optimise its portfolio and sell its stake in L’Oréal.

Nestlé shares jumped by 4.4% to CHF85.65 to Monday on the expectation it would follow Unilever’s lead and increase the pace of investor returns. And the market didn’t have to wait long for Nestlé’s response. On Tuesday evening it announced the buyback of CHF20bn of shares by June 2020 - about 7% of its outstanding share capital. The announcement was accompanied by an updated strategic plan, which suggested it was eyeing M&A opportunities, will focus capital spend in high-growth categories, dispose of non-core assets and look to boost margins.

Nestlé received credit downgrades from S&P and Fitch from AA to AA- for its troubles, but the market reception was more positive. Analyst UBS called the response “a well-balanced way of responding to shareholder concerns without being overly reactionary to Third Point’s letter.”

Jefferies called the measures “a suitably contingent statement, relative to excited recent speculation”. Barclays also felt change was taking place “for the better” under the leadership of new CEO Mark Schneider, but sought to calm industry excitement that Nestlé would ratchet up the bottom line. “We do not rule out a greater sense of urgency behind cost reduction and margin progression, but continue to see the group prioritising long-term growth, and related investment, over short-term more dramatic margin uplift.”

By Thursday lunchtime, Nestlé shares were 2.3% higher for the week at CHF84.10, having hit an annual high of CHF86.00 on Monday.