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November 7, 2012 12:00 am
The move will pit Trian, the US investment firm cofounded by Mr Peltz, against the French business establishment and a shareholder base that has traditionally resisted Anglo Saxon-style activism.
Trian has bought a 1 per cent stake in the French food group, worth about €300m, according to people familiar with the situation. Mr Peltz is expected today to call for the yoghurt maker to cut costs and be more disciplined with its use of cash.
As with the recent involvement of activist Bill Ackman at consumer goods group Procter & Gamble, the move will test the ability of outspoken investors to affect the direction and share price of large companies.
Danone investors have seen no return over five years, with dividends largely offsetting an almost 20 per cent decline in the share price. After a profit warning this summer, the shares – which closed down nearly 1 per cent on Tuesday at €48.13 – are trailing the wider food sector.
Franck Riboud, Danone’s chief executive since 1996, has reshaped the group to focus on three fast-growing categories: yoghurt; bottled water; and baby and medical nutrition. More than half its sales come from emerging markets.
His €13.4bn purchase of baby-food maker Numico in 2007 left the group burdened with debt and Danone was forced to issue equity to pay down borrowing during the financial crisis.
While Danone this year announced a stock buyback, investors have remained concerned about its use of capital, slowing growth and the potential for competition in yoghurt from cheaper supermarket brands.
Mr Peltz, a long-term investor, is supportive of Mr Riboud and plans to seek discussions with the company, according to people close to the situation. He is expected to call for moderate improvements, such as improving operating margins by 100 basis points to 15.1 per cent by 2015 and the return of all excess cash flow in the form of share buybacks.
His strategy is in large part that of the activist as advocate, aiming to bring attention to what Trian sees as a good company undervalued by the market, rather than to call for radical action, according to people familiar his plans.
Trian declined to comment. Danone could not immediately be reached for comment.
Trian made its name by shaking up food manufacturers such as Heinz, where Mr Peltz fought a proxy battle in 2006 and still sits on the board, as well as at Kraft and Cadbury, the UK confectioner the US group eventually acquired.
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