The reported activist campaign by billionaire activist investor Nelson Peltz against Estée Lauder is unlikely to bring board changes but could spark operating changes, according to analysts at Canaccord Genuity (TSX:CF, LSE:CF).
Sources told the New York Post that Peltz was exploring a possible shakeup of the cosmetics giants, including potentially ousting its long-time CEO Fabrizio Freda, a cost-cutting campaign, or pushing for the sale of the company.
A subsequent report by CNBC claimed that Peltz has no intention of pursuing an activist campaign at Estée Lauder.
As of the publication of the analysts’ commentary on May 8, there was no formal campaign and no details as to what the campaign could entail.
“We believe that if a formal campaign were to be launched, Peltz and activist investors would be unlikely to win board seats as EL's shareholder voting power is owned by the Lauder family through Class B shares,” they wrote in a note to clients.
They wrote that they did not expect the Lauder family to sell the company.
“LVMH could be the potential suitor as Bernard Arnault has indicated he would potentially be interested in purchasing the cosmetics conglomerate,” they wrote.
“However, Leonard Lauder, son of the founders, is currently the largest shareholder and may not be willing to sell.”
Nonetheless, the analysts noted that the campaign could bring about some changes at Estée Lauder.
“Peltz's most recent major campaign was against Disney, including seeking a board seat to go along with company changes,” they wrote.
“Disney was able to defeat his proxy battle by not giving up a board seat but did announce a $5.5 billion cost-cutting plan along with a corporate reorganization.
“We believe that the rumor of activist shareholder involvement could pressure [Estée Lauder] to make some changes, including cutting costs, divesting from brands, acquiring additional higher-growth brands, and diversifying away from reliance on travel retail.”
Estée Lauder shares were trading down 2.1% at US$201.68 on Tuesday.
Contact the author at emily.jarvie@proactiveinvestors.com
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