US activist investment firm Third Point has taken a stake in FMCG giant Colgate-Palmolive Co. and is pushing for it to divest pet-food business Hill’s Pet Nutrition, reports suggest.
Reuters reported yesterday (18 October) New York hedge fund Third Point, owned by billionaire investor Daniel Loeb, had built a “significant position” in Colgate-Palmolive. The fund “sees value in a potential spinoff of its Hill’s Pet Nutrition business”.
The news agency said it had seen a letter from Loeb that cited reasons it had taken a stake in Colgate-Palmolive, including the strength in its pet-food business.
Reuters quoted the Loeb letter as describing the pet-food market as one of the most “exciting” pockets in consumer foods. The investor reportedly suggested Hill’s could be worth roughly US$20bn if it were a stand-alone company.
“There is meaningful hidden value in the company’s Hill’s Pet Nutrition business, which we believe would command a premium multiple if separated from Colgate’s consumer assets,” the letter reputedly said.
Reuters said Loeb, Third Point’s CEO, sounded a positive note on Colgate-Palmolive’s portfolio but suggested the company’s earnings growth has been disappointing and its stock price has underperformed.
Another news agency, Bloomberg, citing “people familiar with the matter”, said Third Point has built a position worth roughly $1bn in Colgate-Palmolive and is working in collaboration with Toms Capital Investment Management on the investment.
Bloomberg said it had also seen the Loeb letter and quotes it as saying “Hill’s is a phenomenal brand with a long runway for growth”.
In 2021, Hill’s Pet Nutrition’s net sales were US$3.31bn, up 15% on a year earlier, or by 13.5% on an organic basis. The pet-food division accounted for 19% of Colgate-Palmolive’s total net sales in 2021. In 2019, that portion stood at 16%.
According to the news agencies, the investor called in the letter for the Colgate-Palmolive board to take action, a tactic Third Point has used before in a number of sectors.
In the food sector, it is perhaps best known for its previous investments in Nestlé and Campbell Soup Co.
In 2017, Third Point bought a stake in Nestlé and called for “a decisive and bold action plan” to address what it said at the time was a “staid culture” and “tendency towards incrementalism” at the world’s largest food company. Nestlé subsequently set out its plans to drive growth but said its management had already reassessed its priorities. A year on, Third Point continued its criticism, prompting Nestlé to defend its strategy.
At Campbell, in 2018, Third Point was publicly critical of the way the soup and meatballs giant had been run and its campaign led to electing two executives chosen by Third Point to its board and disposing of a number of assets.
Colgate-Palmolive announced European expansion plans for Hill’s Pet Nutrition earlier this year.
Neither it nor Third Point had responded to requests from Just Food for comment on the news agency reports at the time of writing.
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