Food companies are under pressure to reduce costs after Kraft Heinz Co.'s unsuccessful bid for Unilever earlier this year showed that even the largest players could become targets.
Nestle declined to comment specifically on the Third Point investment and letter. That may be the activist's largest ever initial bet, but it only buys a little over 1% of the Swiss packaged-food giant, which is easily Europe's most valuable company.
Should the sales by Nestle and L'Oreal come to pass, they would be testament to the growing power of activist investors in Europe: The region's big companies may succumb to market pressure and unwind decisions made decades ago for political or strategic reasons.
L'Oreal owns about 9.4 percent of Sanofi, and speculation has swirled for years that the Paris-based cosmetics company would sell the stock to help pay for a repurchase of Nestle's L'Oreal shares.
Third Point said the L'Oreal stake could be divested through an exchange offer for Nestle shares "that would accelerate efforts to optimize its capital return 7 policies, immediately enhance the company's return on equity, and meaningfully increase its share value in the long run as earnings improve over a reduced share count". L'Oreal had no comment.
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Bertschy added that much of what Third Point said was probably part of Schneider's plan going forward.
"It is rare to find a business of Nestlé's quality with so many avenues for improvement", Third Point said in a letter to investors, seen by the Wall Street Journal.
Nestle stock has gained over 55% in the last five years. Nestle said this month it may sell its US candies unit, which includes brands such as Butterfinger and BabyRuth. Reckitt Benckiser Group Plc has moved to sell its food business after acquiring baby-formula maker Mead Johnson, while Danone SA is selling the Stonyfield yogurt business after acquiring soy milk maker WhiteWave.
Analysts at Jefferies agree that Third Point makes some good points about Nestle, but execution would be hard. The firm also called on Nestle to set a formal operating margin target of 18 percent to 20 percent by 2020.
Nestle acquired a 29% stake in L'Oreal in 1974, it sold 6% in 2014, leaving a 23% stake worth more than $25 billion or roughly 10% of Nestle's market capitalization, Third Point said. "Given its very, very powerful portfolio, particularly in areas like Nespresso, it's pretty well placed for the future".
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