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Fixing the Recipe at Danone Will Take Time

By Carol Ryan 

Activist investors have scored a surprisingly quick win at Danone. Bringing the Paris-listed food company back to full health will be a much lengthier process.

On Monday, the maker of Dannon yogurt and Evian bottled water said that Emmanuel Faber, who has led the business since late 2014, will stand down. Two weeks ago, the board proposed a compromise to Danone's unhappy shareholders by agreeing to split the roles of chairman and chief executive officer held by Mr. Faber, while allowing him to stay on as chair.

This didn't wash with investors, so board member Gilles Schnepp will take over as chair instead. An external head hunter is already looking for a new CEO. The news sent Danone's shares up 5% in early morning trading.

It is a victory for Wisconsin-based fund Artisan Partners, which only last month disclosed a 3% stake and demanded a full change of leadership. U.K. activist fund Bluebell Capital Partners also has been agitating.

Activist investors generally avoid French companies, perceiving their odds of success to be lower than elsewhere: The U.K. had three times as many activist targets as France last year, according to Lazard. Pursuing Danone worked because mainstream shareholders were already impatient with Mr. Faber. On his watch, the company overpaid for dairy-alternative business WhiteWave in 2016, missed sales and profit targets and delivered subpar annual shareholder returns of 4% -- around half the level at Nestlé and Unilever.

Overhauling the business could be expensive. Danone already owns healthy products, so may not need big deals to align its portfolio with contemporary tastes. However, it has underinvested in its brands for years. While competitors have slightly increased the percentage of sales they plow back into marketing over the past decade, Danone has cut back by 3.2 percentage points, according to Bernstein. Resetting Danone's already low 14% operating margin may be inevitable if the company is to reverse recent market-share losses in important categories like plant-based drinks and infant formula.

One question concerns Mr. Faber's focus on high environmental, social and governance standards. A new boss will have to weigh any new profit goals against Danone's ambitious ESG targets, a balance that has proven tricky in the past.

Danone has taken its most significant step in years toward a new approach, but it could take years to pay off.

Write to Carol Ryan at carol.ryan@wsj.com

 

(END) Dow Jones Newswires

March 15, 2021 10:49 ET (14:49 GMT)

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