Shares in Nestlé rose more than 4 per cent on Monday morning after the Swiss consumer group became latest target of US activist investor Daniel Loeb.
Mr Loeb's Third Point has taken an investment position of roughly 40m shares, or 1.3 per cent, in the company, and has begun "productive conversations" with management, the US-based hedge fund said on Sunday. The stake, including options, is worth about $3.5bn, it said.
Nestlé, whose products include baby milk, pet food, Nespresso coffee and KitKat chocolate bars, is under pressure to boost profitability as the global food industry reacts to pressures unleashed by Kraft Heinz's failed $143bn takeover approach this year for Anglo-Dutch group Unilever.
A spokesman for the company said: "As always, we keep an open dialogue with all of our shareholders and we remain committed to executing our strategy and creating long-term shareholder value." It declined to comment further.
Investors have broadly welcomed the arrival of Mark Schneider, who took over as Nestlé's chief executive in January. But Third Point said the company is "ripe for improvement", and is "stuck in its old ways".
The hedge fund is proposing Nestlé set a formal profit margin target of 18-20 per cent by 2020, boost its debt to buy back shares, put non-core products in its portfolio up for sale and sell its 23 per cent stake in cosmetics maker L'Oréal. Nestle's current operating margin is about 15 per cent.
Its shares jumped 4.2 per cent to a record high of SFr85.50 in morning trading in Zurich on Monday. The stock has risen 17 per cent so far this year.
The company announced this month that it would quit the US confectionery business and put up for possible sale brands including Butterfinger, Baby Ruth and Crunch chocolate bars which generated sales of SFr900m ($923m) last year. Analysts believe Nestlé's revamped US frozen food business could also be put up for sale by Mr Schneider.
Nestlé has also taken a stake in Freshly, a New York-based online ready meals company, as it seeks to build expertise in distribution and shore up its position in America's fast changing food retail market.
Those changes may not be enough for Third Point. It said Mr Schneider "will need to articulate a decisive and bold action plan that addresses the staid culture and tendency towards incrementalism that has typified the company's prior leadership and resulted in its long-term underperformance".
Mr Loeb, whose fund also has a large portfolio of credit investments, has returned to activism after a hiatus in 2016 when he thought there were too few opportunities. Third Point is also agitating for a change to plans at Dow Chemical and DuPont, which are preparing the restructuring that will follow their merger.
Nestlé's businesses model has traditionally focused on leveraging its sales growth, and its size acts as a defence against possible takeover attempts. Organic growth has slowed in recent years as a result of changing consumer trends and a sluggish global economy, and Kraft Heinz's actions have fuelled speculation that Nestlé would not be immune to upheaval in the global food industry.
Unilever, under pressure from the aborted Kraft Heinz bid in February, increased its operating profit margin target to 20 per cent by 2020, up from 16 per cent.
In one of his few public appearances since taking over, Mr Schneider has hinted he will put greater emphasis on boosting profits.