* 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" with management.
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 on Wednesday.
"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 Danone's stock.
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.