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Tuesday, June 27, 2017

Nestle targeted by activist investor Dan Loeb’s Third Point with $3.5 bn stake

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New York/San Francisco: Nestle SA is being targeted by activist investor Dan Loeb’s hedge fund Third Point, which has built a stake of more than $3.5 billion in the world’s biggest food company.

Loeb owns about 40 million shares and some options in the Vevey, Switzerland-based company, according to an investor letter released Sunday after Bloomberg first reported the activist stake. The fund intends to encourage management to “pursue change with a greater sense of urgency” by selling its stake in L’Oreal SA, increasing leverage for share buybacks and reviewing its portfolio, among other suggestions.

“Despite having arguably the best positioned portfolio in the consumer packaged goods industry, Nestle shares have significantly underperformed most of their US and European consumer staples,” Third Point wrote in the letter. “It is rare to find a business of Nestle’s quality with so many avenues for improvement.”

Nestle owns about 23.2% of cosmetics giant L’Oreal, according to data compiled by Bloomberg, a stake with a market value of about $27 billion. In addition to selling that holding, Third Point wants Nestle to scour its portfolio of more than 2,000 brands for possible sales and consider “accretive, bolt-on acquisitions in high growth and advantaged categories.” The firm also called on Nestle to set a formal operating margin target of 18% to 20% by 2020.

A representative for Nestle was unable to immediately comment.

European targets

Third Point, better known for targeting US and Japanese companies, has recently been drawn to European investment opportunities, according to the firm’s first-quarter investor letter.

“We are seeing more opportunities in Europe because of strong and improving economic data, a trend that will likely continue now that the French elections have passed without incident,” Third Point wrote in that 27 April letter.

The move comes as Nestle’s new chief executive officer Mark Schneider aims to boost the company’s health strategy as well as focus on the businesses that are growing fastest, such as coffee and pet food. 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.

Chocolate makers especially are grappling with weak US consumption as Americans increasingly turn their backs on sugar. Nestle said this month it may sell its US sweets unit, which includes brands such as Butterfinger and BabyRuth.

Consumer companies have been popular targets for activist shareholders because of their bloated expenses and lackluster growth. So far, activist investors have predominantly targeted US companies, putting pressure on them to boost margins.

In 2015, billionaire hedge fund manager Bill Ackman amassed a $5.6 billion stake in snack giant Mondelez International Inc. and called for management to improve the company’s performance, leading to cost cuts. Procter & Gamble Co. has also attracted an activist: Nelson Peltz’s Trian Fund Management LP revealed a new stake in the consumer-products maker in February and has amassed a stake valued at about $3.3 billion, according to its latest regulatory filing.

Third Point

Third Point has targeted European companies before. Vitamin maker Royal DSM NV also attracted the activist, and went on to sell its majority stake in a basic plastics and resins unit to CVC Capital Partners after facing calls to break up. The hedge fund also said in April it had invested in UniCredit SpA, the second largest listed bank in Italy which has a significant presence in Germany and Austria, drawn by its low valuation and €13 billion rights issue in March.

Third Point also invested in German utility operator E.On, which spun off its generation assets into Uniper last year, arguing the remaining regulated grids and renewables business “is currently misunderstood by the market and attractively priced.”

Founded in 1995 by Loeb, Third Point in April said it took a stake in Honeywell International Inc. and called for the industrial manufacturer to spin off its aerospace business. The firm has also focused much of its recent activism in Japan, where investments have included Seven & i Holdings Co. and Sony Corp.

“Third Point intends to play a constructive role to encourage management to pursue change with a greater sense of urgency,” the firm wrote of Nestle in Sunday’s letter. “We have offered our views in productive conversations with management, which we expect will continue.

Indian markets closed today for public holiday

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Mumbai: India’s stocks, bonds and currency markets will be closed on Monday for a public holiday. Trading will resume on Tuesday.

The broader NSE index fell 0.57% on Friday, closing at its lowest since 25 May. The benchmark BSE index fell 0.49%.

The new 10-year bond yield rose 1 basis point to 6.46%, while the rupee strengthened to 64.52 per dollar from its 64.59 close on Thursday.

Snapdeal sale to Flipkart delayed due to complex due diligence process

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Bengaluru: A complex due diligence process is delaying the Snapdeal sale to Flipkart, two people familiar with the matter said.

Snapdeal’s sale to Flipkart is on track despite the delay with the due diligence process, the people said. The deal is expected to conclude sometime in July, they added. The due diligence process had started last month.

Flipkart is expected to pay slightly less than its preliminary offer of $1 billion to buy out Snapdeal, with the final deal value expected to be in the range of $700-900 million, said the two people cited above, both of whom spoke on condition of anonymity as the discussions are confidential.

Over the past few weeks, smaller shareholders in Snapdeal, including billionaire Azim Premji’s investment firm PremjiInvest, had written to the firm’s board, expressing unhappiness over the current terms of its sale, which is being engineered by Snapdeal’s largest investor, SoftBank Group Corp.

“Of course, the smaller shareholders are not happy since they want a larger exit payout—but they have no power to hold up the deal. The sale will go through irrespective of whether the smaller investors are on board or not,” said one of the two people cited earlier.

The process of going through the details of Snapdeal’s books and its various subsidiaries has proved to be more complex than anticipated, said both the people. The prolonged due diligence has also held up a separate transaction to sell Snapdeal’s payments business FreeCharge. In May, Paytm had offered to buy FreeCharge for $40-50 million as part of a fire sale.

Some experts tracking the sale talks have questioned the viability of this deal for Flipkart, which will have the added burden and distraction of integrating Snapdeal months after it bought out eBay’s India business amid a bruising tussle with deep-pocketed rival Amazon India.

On 3 May, Mint reported that the board of Jasper Infotech Pvt. Ltd, which runs Snapdeal, had moved a step closer to agreeing to a distress sale to Flipkart even as a conflict between SoftBank and three key shareholders remained unresolved. On 12 May, Mint reported that Flipkart had made an informal offer to buy Snapdeal for $1 billion in an all-stock deal.

Nexus Venture Partners and Kalaari Capital have been locked in a tussle with SoftBank over the company’s valuation in a potential sale or funding round over the past few months. Snapdeal is the largest investment for Kalaari and Nexus, and a bad deal could be damaging for the two home-grown venture capital firms.

Since the preliminary informal offer, SoftBank and other key shareholders including Nexus and Kalaari have come closer to resolving their differences on the terms of the sale, said the two people cited earlier.

Mint had reported in May that SoftBank had proposed to hand out $60 million to Nexus and about $30 million to Kalaari. Snapdeal founders Kunal Bahl and Rohit Bansal have been offered $15 million each, with an additional $30 million for the management team and employees.

Investment bank Credit Suisse, which helped Snapdeal raise funds in 2014, is representing Snapdeal in the proposed deal with Flipkart. Snapdeal, which has raised nearly $2 billion in cash, hit a peak valuation of $6.5 billion in February 2016 when it received $50 million from investors.

All you need to know about GST

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What is GST?

Goods and Services Tax (GST) is a value-added tax at each stage of the supply of goods and services precisely on the amount of value addition achieved. It seeks to eliminate inefficiencies in the tax system that result in ‘tax on tax’, known as cascading of taxes. GST is a destination-based tax on consumption, as per which the state’s share of taxes on inter-state commerce goes to the one that is home to the final consumer, rather than to the exporting state. GST has two equal components of central and state GST.

What is input tax credit?

To make sure that tax is levied only on the amount of value addition at each stage of the supply chain, credit for the taxes paid at the previous stage is granted. For example, a garment manufacturer gets credit for the taxes paid on the materials purchased while computing the final indirect tax liability on his product that is collected from the consumer. Similarly, a service provider, say, a telecom company, gets credits for the taxes paid on the goods and services used in his business.

Who is liable to pay GST?

Businesses and traders with annual sales above Rs20 lakh are liable to pay GST. The threshold for paying GST is Rs10 lakh in the case of northeastern and special category states. GST is applicable on inter-state trade irrespective of this threshold.

What are the existing taxes subsumed into GST?

Taxes on production such as central excise duty and additional excise duty, import duties such as additional customs duty known as countervailing duty and special additional customs duty, service tax, central cesses and surcharges, state taxes like value-added tax (VAT), central sales tax on inter-state trade of goods, luxury tax, entertainment tax except those levied by local bodies, taxes on advertisements, taxes on betting and gambling and state cesses and surcharges on supply of goods and services are subsumed into GST. Basic customs duty, which includes the tariff barrier on imports, is not part of GST.

What are the benefits of GST?

GST brings transparency on the taxes levied on the supply of goods and services. At present, when an item is purchased, the common man sees only the state taxes on the product label, not the various embedded tax components. GST will improve the ease of doing business as entry barriers along state borders will be dismantled. The new indirect tax system is expected to improve tax compliance, boost revenue receipts of central and state governments and accelerate GDP growth rate by an estimated 1.5-2 percentage points. Elimination of cascading of taxes will result in reduced tax burden on many items.

What are the products not part of GST?

Crude oil, diesel, petrol, natural gas and jet fuel are temporarily kept out of GST. The GST Council, the federal indirect tax body of state finance ministers chaired by the Union finance minister, will decide when to bring these items into GST. Liquor is kept out of GST as a constitutional provision and hence it would require an amendment to Constitution if it is to be brought into GST net.

What is integrated GST or IGST?

IGST is the tax on inter-state supply of goods and services with central and state GST components.

How are imports treated?

Imports are treated as inter-state supplies and will attract IGST. Exports do not attract any tax. Taxes paid on raw materials and services used in export of goods and services are refunded to the business.

What is the anti-profiteering mechanism?

To prevent the possibility of prices going up and to make sure that the reduced tax burden on products and services are passed on to consumers, the government has introduced an anti-profiteering clause in the GST law. The anti-pro teering authority to be set up will act on complaints of profiteering and direct a profiteering supplier to cut price, return the benefit of reduced tax burden to the buyer with 18% interest, or recover such amount if the buyer cannot be identified or doesn’t make a claim. A profiteering business could lose its GST registration, too.

How are decisions taken at the GST Council?

No decision can be taken in the Council without the concurrence of both the Union and the state governments. Decisions will be taken by a 75% majority of the weighted votes of members present and voting. The Union government’s vote has a weightage of one-third of the votes cast, while all states together will have a weightage of two-thirds of the votes cast.

Toshiba Says Open To Talks With Western Digital Over $18 Billion Chip Unit Sale

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Tokyo: Toshiba Corp said it was open to talks with Western Digital Corp in their dispute over the sale of the Japanese conglomerate’s prized chip unit – an apparent olive branch after it chose another suitor as preferred bidder.

Toshiba would be willing to hold talks but does not expect the composition of the preferred bidder consortium, which includes Bain Capital and Japanese government investors, to change before June 28, Chief Executive Satoshi Tsunakawa told a news conference.

It is aiming to clinch a deal, worth some $18 billion, by June 28, the day of its shareholders’ annual meeting.

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