Danone, the world’s biggest yogurt maker, said it plans to cut about 200 million euros ($262 million) in costs over two years, a month after activist investor Nelson Peltz called on management to reduce expenses.
The company spent months preparing the plan to trim general and administrative costs and change Danone’s management structure in Europe, spokeswoman Agnes Berthet-d’Anthonay said by telephone, denying that the move was linked to Peltz.
“It’s not the kind of decision you take in one month -- there is no link between Nelson Peltz and this announcement.”
Peltz, whose Trian Fund Management LP holds a 1 percent stake in Danone, said last month that Trian planned to engage with management and said the Paris-based company is undervalued. He’s now likely to “encourage management to execute on today’s announcement,” while advocating a focus on capital returns, said Jon Cox, an analyst at Kepler Capital Markets in Zurich.
While Peltz is supportive of Chief Executive Officer Franck Riboud, he was expected to push for cost-cutting and for the company to be more disciplined in its use of cash, the Financial Times reported last month, citing unidentified people.
The cost-saving plan will be based on “voluntary measures” with a focus on “internal mobility,” Danone said.
“It is a positive move and must at least partly be seen” as a response to pressure from Peltz, said Kepler’s Cox.
Berthet-d’Anthonay declined to comment on whether Danone management have met with Peltz. The company said it plans to submit the cost plan to the Works Council in France by March.
Danone shares rose as much as 2.4 percent in Paris trading, the steepest intraday gain in more than three weeks. They were up 1.6 percent at 51.14 euros as of 10:37 a.m., the second-biggest advance in France’s benchmark CAC 40 Index.
The maker of Activia yogurt has struggled in southern Europe this year as the region’s debt crisis continues to take a toll on consumer spending. Danone in June cut its full-year forecast for profit margins because of declining consumption in the region. While the company has gross margins that exceed the industry average, its operating margins trail those of its consumer peer group, according to data compiled by Bloomberg.
The cost-cutting plan “demonstrates that the top management is highly focused on fixing the business in Europe,” Pierre Tegner, an analyst at Natixis, said in a note.
Danone’s third-quarter revenue missed estimates as weakness in Spain and Greece caused the slowest growth in sales of dairy products in more than three years.
“We believe that this plan is mainly focused on Danone’s dairy-products division,” Laurence Hofmann, an analyst at Oddo Securities, said in a note to clients. “The cost reductions will most certainly be reinvested in price reductions on its dairy products.”
Peltz made his first fortune in the 1980s through leveraged buyouts financed by high-yield bonds sold by Michael Milken. He also has earned a reputation for improving the operational management of companies, many of them consumer-focused. The 70-year-old investor typically buys stakes in companies and then pushes them to boost their value by cutting costs or merging.