* Danone silent on Peltz stake, shares gain 1.9 pct
* Operating margin lags Nestle's
* Spain seen as potential area for cost cuts-analyst
* Company to meet with investors next week
By Soyoung Kim and Christian Plumb
NEW YORK/PARIS, Nov 7 Activist investor Nelson
Peltz has taken a stake of roughly 1 percent in Danone
and said that the French food group is undervalued and should
implement cost cuts and other measures to boost its stock price.
The billionaire American's investment company Trian Fund
Management LP believes that Danone's stock has the potential to
rise more than 60 percent to 78 euros ($99.49) by the end of
2014 and said it expects to engage in "constructive dialogue"
Danone, the world's largest yoghurt maker, is expected to
post an operating margin of only 14.1 percent this year, below
those of other large food companies, Trian said in a statement
"Trian believes Danone's shares currently trade at a
significant discount to intrinsic value and that targeted
strategies to improve performance, such as a leaner cost
structure and refraining from dilutive mergers, could generate
significant shareholder value," it said.
Danone's operating margin over the past 12 months stands at
13.6 percent, behind larger rival Nestle's 14.8
percent, though slightly ahead of Unilever's 13.4
percent, Thomson Reuters data shows.
Shares in Danone, which is due to start a three-day long
"investor seminar" next Wednesday, were up 1.8 percent at 1254
GMT but have moved little so far this year, underperforming the
sector's 18 percent gain.
Danone could use the investor presentations as a forum to
deepen its 500 million euro ($638 million) annual "productivity
gains" programme to between 700 million and 800 million euros,
said MainFirst Bank analyst Alain Oberhuber, adding that its
troubled Spain operations could be ripe for the kind of cost
cuts Peltz is seeking.
NO 'BIG BANG' RESTRUCTURING
Activities such as procurement, distribution, real estate
and human resources, many of which are managed on a separate
basis out of Spain, could be much more centralised to boost
efficiency, Oberhuber said.
"Danone still remains very decentralised," he said,
comparing its efficiency unfavourably with Nestle and Unilever.
The company, which issued a surprise profit warning in June
because of stalled growth at its core dairy division, declined
to react to Peltz's move for a second day. It merely repeated
its contention that it had not been informed by Peltz or his
fund that he had crossed the threshold of 0.5 percent of
Peltz, who often tackles management at companies he
considers undervalued or poorly managed, said that the Danone
management, led by Chief Executive Franck Riboud, has "run
Danone well", transforming it into one of the best-positioned
portfolios in the large-cap food sector.
With its exposure to high-growth categories such as yoghurt,
bottled water and infant nutrition, as well as its strong
presence in emerging markets, Danone's shares should trade at a
premium, Trian said.
Instead, Danone is fetching a stock market valuation in line
with slower-growing U.S. competitors, such as Campbell Soup
and General Mills Inc, the investment firm said.
"Danone has been criticised for not doing any big-bang
restructuring in western Europe or publicly talking about large
layoffs, in contrast to other companies, such as Unilever
, and this could be a trigger for more aggressive
action," Kepler Capital Markets analyst Jon Cox said.
In recent months Peltz has revealed stakes in companies
ranging from InterContinental Hotels Group and PepsiCo
to Heinz and Ingersoll Rand in an effort
to push for changes.
Peltz is also famous for being instrumental in the break-up
of Britain's Cadbury, building a stake in Cadbury Schweppes and
pushing it into a decision to demerge in 2007. After the split,
Cadbury was taken over by Kraft in 2010.