Danone shake-up demanded by big shareholder

A large shareholder in French consumer goods group Danone has urged its directors to oust chairman and chief executive Emmanuel Faber, halt a planned group reorganisation that he has championed, and sell underperforming brands that account for 15 per cent of revenue.

Artisan Partners, a US-based investment fund that says it is the third-biggest shareholder of Danone with a roughly 3 per cent stake, presented its plan to turn round the company in a meeting with the board on Tuesday. Faber, who has led the group that makes Activia yoghurt and Evian bottled water since 2014, did not attend.

Artisan’s plan was designed by Jan Bennink, an experienced consumer industry executive who earlier worked in Danone’s dairy and medical nutrition businesses.

Bennink has been working with Artisan since October to analyse what has gone wrong with the business and what remedies are needed. He took on a similar advisory role for US activist fund Third Point in a campaign at Nestlé that began in 2017.

“We gave the board our analysis since we want them to know what the business really looks like, as well as our wish list for changes that need to be made,” said Bennink in an interview.

“Danone used to be an innovator that was early to new food trends, but they have lost that culture and are losing market share as a result,” he said. “There has also been an enormous decline in advertising spending, which means they are not investing enough in their brands.”

Asked whether Artisan would seek to replace the board at Danone’s annual meeting in April if it did not agree to its demands, Bennink declined to say. “We’ve made our ideas clear, and hope that the board is in good listening mode,” he said.

Artisan’s campaign for change is likely to turn up the heat on Danone’s board and on Faber. A growing number of investors have gone public in recent weeks with criticism of what they see as the poor financial performance of the group.

Danone’s share price has trailed its larger rivals since Faber took over, rising about 3 per cent since October 2014, while Nestlé, Unilever and Procter & Gamble have risen between 43 and 54 per cent.

The activist fund Bluebell Capital in January called for a governance overhaul at Danone to split the roles of chief executive and chairman. Another US-based fund, Causeway Capital Management, last week echoed that position in an interview with Bloomberg, adding that “people have to take accountability” for missed targets.

Danone’s sales have been hit harder during the Covid-19 pandemic than at competitors, such as Nestlé and P&G, in part because of its categories such as bottled water that usually rely on consumers being outside the home in restaurants or bars. It is not present in the cleaning products business, which has boomed during the pandemic.

In response to the Covid-19 shock, Faber in October announced a major reorganisation of the company along more geographic lines that will lead to as many as 2,000 job cuts. He has also pledged to sell assets and prune the product portfolio.

But Bennink said the company’s problems stretched back far longer than the pandemic and fixing them would require not only a new chief executive, but also a refreshed board with more consumer goods industry expertise. To avoid further disruption, the proposed reorganisation should also be stopped.

“In the last seven years, you have had five organisational changes, which is disruptive and bad for business,” he said, adding that there had also been too-frequent turnover in the management of Danone’s three units.

“The company needs new leadership as CEO, and we also want the chairman to be replaced with an outsider with consumer goods experience,” said Bennink.

Asked if he would want either job, Bennink said it would be up to the board to decide what was best for the company. “I do not want to be CEO, but I’d like to help as much as I can, so if they were to ask me to be chairman, I would be open to it.”

Another element of Artisan’s plan would be to sell slower-growing and less-profitable brands in bottled water, such as Mizone in China, and focus on the premium ones like Evian, Volvic, and Badoit.

In dairy, Danone should exit commodity products such as traditional milk and butter, said Bennink. “Products accounting for about 15 per cent of sales can be sold off, so as to focus on high-margin and high-growth products,” he said.

Danone declined to comment on Artisan’s proposals, but earlier said that it “welcomed all investments and value constructive views on how we deliver long-term sustainable value”.

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