Third Point, a $15 billion activist hedge fund founded by billionaire Dan Loeb, just took a massive stake in Nestl.While Third Point owns only about 1.4% of the Swiss companyThird Point's40 million shares areworth more than $3.5 billionit's one of the biggest activist plays ever. It's the biggest position Loeb has ever taken and the biggest company his fund has ever gone after, per Bloomberg. Nestl has a market cap of about $265 billion.The company is behind a slew of familiar candies,such as Butterfinger, Raisinets, Baby Ruth and KitKat, as well as Gerber baby food and Nescaf.As of March, Third Point was raising fresh money from investors, an infrequent move for the fund, Business Insider reported. It's not clear if that capital raising is still happening or if it was directly linked to building the huge Nestl stake. A spokesperson for Third Point couldn't immediately be reached.Here's a roundup of Third Point's thesis, according toa letter that the fund sent to investors on Sunday, June 25. Emphasis added:Nestl works within a number of "advantaged categories including, coffee, infant formula, pet food and bottled water. Nestl also has a strong footprint in emerging markets. The category and geographic mix of the portfolio is excellent and offers the company a long runway for growth as emerging market customers increase consumption and developed market consumers trade up."Nestl has been underperforming its competitors, however. Here's Nestl's performance, on a total shareholder return basis, per Third Point."Nestl has fallen behind over the past decade in an environment where growth has slowed due to changes in consumer tastes and shopping habits, as well as an influx of new competition from smaller, local brands.""Third Point invested in Nestl because we recognized a familiar set of conditions that make it ripe for improvement and change: a conglomerate with unrealized potential for margin improvement and innovation in its core businesses, an unoptimized balance sheet, a number of non-core assets, and a recent history of meaningful under-performance versus peers."Third Point is happy with Nestl's CEO, Ulf Mark Schneider, who the company hired last year. However, the hedge fund thinks that "in order to succeed, Dr. Schneider will need to articulate a decisive and bold action plan that addresses the staid culture and tendency towards incrementalism that has typified the companys prior leadership and resulted in its long-term underperformance."Third Point has hired Jan Bennink, an expert in the packaged goods space, to advise on the investment.Here is what Nestl has to do, per Third Point:Adopt a formal margin target. Third Point thinks that Nestl should be able to improve its margins by as much as 4% over the next several years.Return capital in conjunction with a formal leverage target."Nestl should set a target of at least 2.0x, which would better optimize the companys cost of capital. Getting to 2.0x and staying there would also produce enormous capacity for share buybacks over time."Re-shape its portfolio.Nestl has more than 2,000 brands in food and beverage and health science. "Management must... strategically reduce exposure" to businesses that are not "key pillars of growth."Sell its stake in L'Oral."The company acquired 29% of LOral, the global leader in beauty products, in 1974 and sold 6% in 2014. This has been a superb investment, and the remaining 23% stake is equivalent to more than $25 billion, or roughly 10%, of Nestls market capitalization today. However, having LOral in the portfolio is not strategic and shareholders should be free to choose whether they want to invest in Nestl or some combination of Nestl and LOral ... We also believe that the LOral stake could be divested via an exchange offer for Nestl shares that would accelerate efforts to optimize its capital return policies, immediately enhance the companys return on equity, and meaningfully increase its share value in the long run as earnings improve over a reduced share count."Nestl, in an emailed statement, 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."Third Point managed $15 billion in hedge fund assets as of the start of the year, according to the Hedge Fund Intelligence Billion Dollar Club ranking.SEE ALSO:Dan Loeb's Third Point is looking to win fresh moneyJoin the conversation about this storyNOW WATCH: Warren Buffett lives in a modest house that's worth .001% of his total wealth ' here's what it looks like
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