US investment group Artisan Partners has added its voice to calls for structural change at French food giant Danone.
In an letter sent to Danone independent board member Gilles Schnepp, and then made public today (11 February), Artisan echoed earlier calls for corporate governance and strategic changes at Danone, including separation of the group’s chairman and chief executive roles, currently held by Emmanuel Faber.
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Artisan, which says it has a stake of more than 3% in Danone and is the company’s third-largest shareholder, is following in the footsteps of London-based activist investor Bluebell Capital Partners, which last month called for change at the top of the Activia and Alpro brands owner.
In its letter to Schnepp, Wisconsin-headquartered Artisan said it had invested around US$1.6bn in Danone in the last year and highlighted its credentials as a large investor in European companies, including Anglo-Dutch consumer goods giant Unilever.
It said: “Our attraction to Danone is very simple: it has one of the best collections of assets in the global food industry. Its brands are well-loved by consumers, command powerful market positions and are in categories that have natural growth rates above industry averages. Danone is truly a star in the industry and deservedly a French icon.
“Unfortunately, the financial performance of Danone is not consistent with the quality of its assets. On almost every measure, Danone’s performance has lagged. Revenue has underperformed relevant category growth rates, margins are below its peer group, and return on equity and capital have stagnated or declined. As a result, the company is in a weakened position as reflected in job losses and the underperformance of its share price over the last one-, three-, five- and ten-year periods.
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By GlobalData“As incoming lead independent director, very shortly you will be supervising the path forward for Danone at this critical juncture. Your operating experience and track record of success are welcome and sorely needed. Our analysis indicates that Danone’s problems span several years.”
Artisan suggested “larger and longer-term issues stem from underinvestment in innovation, product development and product support”.
It added: “The company’s resource allocation is inefficient, and its capital allocation is value-destructive, creating a lack of resources for needed growth investments. These issues have created operating structures and a reliance on certain financial outcomes that are deeply ingrained and difficult to change for even the most experienced internal company managers.
“Deep product and operational experience from outside the company, rather than financial leadership, is required to execute a fundamental turnaround. We hope you share our view that change is urgently needed to avoid permanent damage to the group’s iconic brands and market position.”
It said the measures that need to be implemented are “simple and should be uncontroversial”.
Artisan continued: "The roles of chairman and CEO must be separated. Further, proper corporate governance standards require truly independent directors, to the exclusion of former company management. It is standard and prudent that company leadership be able to execute a new plan without inertia from former executives.
"We do not take lightly our decision to go public with our views. It is neither our preference nor a feature of our investment strategies. But Danone is beginning yet another re-organisation involving a new structure that has not proven successful at other global food companies.
"Danone may also be considering merger, acquisition or disposal activity that could further complicate or weaken the business. Timing has become critical, and there is an opportunity now to make changes that can reinvigorate the company."
Last month, Danone faced calls from Bluebell to make changes to the way the company is run.
The Cow & Gate baby-food owner has already announced a number of structural changes as part of a cost-cutting exercise in order to reboot profit margins.
In November, CEO Faber revealed a new locally-focused corporate structure under six separate zones, each with its own leadership team to promote, among other things, product development that fits with local trends and demands. The company also said it planned to cut up to 2,000 jobs and eliminate 20% of its SKUs.
In December, Danone announced it was creating a strategy transformation committee to sit beside three existing board committees that oversee audit functions, governance and engagement. It also revealed Cécile Cabanis, the former CFO who stepped down in October, had been appointed vice chair of the board in a non-executive capacity.
just-food asked Danone for a response to Artisan's demands.
In a statement, it said: "The board of directors and the management team are fully dedicated to value creation in a sustainable and responsible manner. We welcome all investments and value constructive views on how we deliver long term sustainable value.
"Danone is continuously re-evaluating the way the board of directors and the executive committee are fulfilling their duties, in the best interest of shareholders. In recent months, the company has already taken significant steps to reinforce its governance, starting with a comprehensive refreshment of the board of directors announced on 14 December 2020, towards greater independence, diversity and expertise, and the creation of a Strategy and Transformation Committee which will monitor progress on the execution of Danone's adaptation plan.
"The Danone leadership team has been refreshed, as announced on 19 October 2020 and further detailed during the investor update event held on 23 November 2020. They look forward to sharing additional elements of the plan in subsequent investor updates, the next being on 25 March 2021.
"The board of directors and the management team will continue to engage with shareholders and Danone will update on FY2020 performance on 19 February 2021."
