Fresenius’s Ulf Mark Schneider Appointed Nestlé CEO

Schneider to replace Nestlé’s long-standing CEO Paul Bulcke

Swiss food giant Nestlé SA has appointed Ulf Mark Schneider as its next CEO, surprisingly shifting from its usual practice of appointing internal candidates for the job, as reported by Bloomberg on June 27th, 2016. The appointment of an outsider for the role of CEO marks the first time in Nestlé’s history since 1922. Schneider’s appointment as Nestlé’s CEO comes at a time when the Company is looking to evolve itself into a nutrition, health and wellness company, an area that many large food makers are trying to make a foray into.

Source: Wikipedia
Source: Wikipedia

Schneider, 50, who has German and US citizenship, is credited with building German healthcare group Fresenius SE & Co. KGaA into a global company. He joined Fresenius in 2001 and served as its CFO before becoming CEO in 2003. Prior to Fresenius, he was finance director for Gehe, a pharmaceutical and retail distributor.

Schneider is known to have transformed Fresenius through a series of deals, delivering average returns of 23% a year, including dividends, during his 13 years at its helm. He will head Nestlé at a time when the Company has forecasted that its sales will miss target for a fourth consecutive year. Schneider will assume the role of CEO at Nestlé on January 1st, 2017, after joining the company on September 1st, 2016. He will work alongside recently appointed FCO, Francois-Xavier Roger, whose background also is in healthcare.

Schneider will replace current CEO Paul Bulcke, who has been proposed to be Nestlé’s next chairman after the current chairman Peter Brabeck-Letmathe retires in 2017. Bulcke, who has led the company since 2008, will resign at the end of 2016 before standing for election as chairman at Nestlé’s annual general meeting on April 6th, 2017. Bulcke will take over as non-executive chairman from Peter Brabeck-Letmathe, who is retiring after 50 years with the company.

Shift to health and wellness

Vevey, Switzerland-based Nestlé, best known for its chocolates, bottled water, Dreyer’s ice cream, Gerber baby food, and Lean Cuisine frozen meals, has been investing more in higher-margin, higher-growth healthcare products as part of its health and wellness push. The Company has also signed a series of deals with small companies in its bid to create a new kind of business that is midway between food and pharmaceuticals. Nestlé is also looking at new ways to treat, diagnose and prevent a range of diseases, from gastrointestinal problems to Alzheimer’s. With so much going on, Nestlé’s appointment of Schneider is part of its long-term strategy to integrate its health science and skin health divisions.

Setbacks and regulatory hurdles

Source: Company's Website
Source: Company’s Website

Nestlé, which reported a 37% drop in profits in 2015 due to a stronger Swiss franc and one-time items linked to deal-making, suffered a setback to its Asian operations in 2015 after it had to recall Maggi noodles in India after the popular snack was found to contain lead above permissible limits. Meanwhile, its Nespresso coffee business faces a slowdown and a revamp of its ailing frozen-food business in the U.S. is yet to be completed.

Meanwhile, Nestlé has also joined a growing list of major U.S. food/beverage companies that support the U.S. Food and Drug Administration’s guidelines to further reduce sodium in its products. Since 2011, the company has operated its Nestlé Institute of Health Sciences, which researches and develops nutritional solutions for better health. Carbonated soft drink makers such as PepsiCo. Inc. (NYSE: PEP), The Coca-Cola Co. (NYSE: KO),  and Dr Pepper Snapple Group Inc. (NYSE: DPS), faced with mounting consumer backlash, have also pledged to reduce the calories from their beverages by 20% over the next decade by marketing smaller sizes and diet drinks.

Nestlé may regain KitKat US license

The Hershey Company (NYSE: HSY) has rejected a $23 billion takeover offer from Mondelez International Inc. (NASDAQ: MDLZ), whose brands include Cadbury chocolate bars and Lu cookies. A combined Mondelez-Hershey entity would command about 18% of the global confectionery market, according to Euromonitor and as reported by Bloomberg on July 1st, 2016. If the deal were to materialize, Nestlé would be interested to regain its KitKat U.S. license. It may be recalled that Hershey has perpetual rights to the KitKat brand in the U.S. through a legacy licensing deal. KitKat is a $2 billion brand for Nestle. Moreover, Mondelez’s bid could put pressure on Nestlé to consider its own bid for Hershey in the future.

Nestlé-Froneri joint venture

Seeking to diversify its operations, Nestlé and R&R, U.K.’s leading ice cream company, have joined hands to set up a joint venture company called Froneri, with sales of around CHF2.7 billion in over 20 countries. Froneri will employ about 15,000 people with its headquarters in the U.K., according to a company release on April 27th, 2016. Froneri will operate primarily in Europe, the Middle East (excluding Israel), Argentina, Australia, Brazil, the Philippines and South Africa. The deal is subject to regulatory approvals.

It now remains to be seen whether Schneider can indeed steer Nestlé through troubled times to silence naysayers that the Company’s scale stifles agility.

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