Activist investor Third Point pushes Colgate-Palmolive to sell off Hill’s Pet Nutrition

US activist investor Third Point has built an equity position in Colgate-Palmolive to push the US CPG giant to sell off its petcare business.

The hedge fund said in an investor letter this morning its investment fitted “several important criteria in the current investment environment”, including having significant pricing power in inflationary conditions.

“There is meaningful hidden value in the company’s Hill’s Pet Nutrition business, which Third Point believes would command a premium multiple if separated from Colgate’s consumer assets,” the hedge fund said.

“There is a favourable industry backdrop in consumer health, with new entrants via spin-offs and potential for consolidation.

“Third Point believes the valuation is attractive both because earnings growth is poised to inflect higher, and because shareholders are paying little for the optionality around Hill’s or Colgate’s ability to participate in further consolidation in the consumer health sector.”

However, Colgate-Palmolive shares had a muted reaction to the news, edging down 0.3% to $72.73 in US trading today, having risen 1.1% yesterday.

Broker Bernstein poured cold water on Third Point’s spin-off plan, noting: “Over the past 10 years, Hill’s has contributed more than 100% of the revenue, and profit growth of the CL business in its entirety.

“Put another way – absent Hill’s – CL’s revenues and profits would have shrunk over the past 10 years.”

It added that petcare remained one of the best global consumer goods categories to operate in and “we struggle to see how divesting its best business is likely to be at all beneficial to CL shareholders over the long term”.

In Colgate-Palmolive’s most recent quarterly filing, it said Hill’s second quarter revenues were up 18% on an organic basis on volume growth of 5.5% and selling prices up 12.5%.

Meanwhile, oral, personal and home care was up 7% on price increases of 7.5% and a volume decline of 0.5%.

Net sales for Hill’s Pet Nutrition in 2021 were $3.3bn, an increase of 15% from 2020. Total sales were $17.4bn.