Letter from Artisan Global Value Strategy and Artisan International Value Strategy to Gilles Schnepp, Lead Independent Board Member Elect at Danone, Inc.

SAN FRANCISCO, Feb. 11, 2021 /PRNewswire/ --

Please find below a letter sent by the third-largest shareholder in Danone to Gilles Schnepp, Lead Independent Board Member Elect at Danone, Inc.

In their letter, Daniel J. O'Keefe, Artisan Global Value Strategy Lead Portfolio Manager and N. David Samra, Artisan International Value Strategy Lead Portfolio Manager express their views on the company's performance and their suggested path forward for Danone.

Gilles Schnepp
Lead Independent Board Member Elect
Danone Inc.

Dear Mr. Schnepp:

As you know, over the course of the last year, the Artisan Partners International Value and Global Value teams have made a significant investment in Danone, approximating $1.6 billion—a position of more than 3.0% of the company, making us one of the three largest shareholders. Both teams are long-term value investors managing collectively over $45 billion in long-only equity. Our teams have a proud track record of supporting European businesses as constructive shareholders with a very long-term investment horizon. By way of example, we have held more than decade-long investments in companies such as Diageo, Unilever, Novartis and Sodexo.

Our attraction to Danone is very simple: It has one of the best collections of assets in the global food industry. Its brands are well-loved by consumers, command powerful market positions and are in categories that have natural growth rates above industry averages. Danone is truly a star in the industry and deservedly a French icon.

Unfortunately, the financial performance of Danone is not consistent with the quality of its assets. On almost every measure, Danone's performance has lagged. Revenue has underperformed relevant category growth rates, margins are below its peer group, and return on equity and capital have stagnated or declined. As a result, the company is in a weakened position as reflected in job losses and the underperformance of its share price over the last one-, three-, five- and ten-year periods.

As incoming lead independent director, very shortly you will be supervising the path forward for Danone at this critical juncture. Your operating experience and track record of success are welcome and sorely needed. Our analysis indicates that Danone's problems span several years. Whilst the COVID-19 pandemic has had a negative impact on certain products in the shorter term, the larger and longer-term issues stem from underinvestment in innovation, product development and product support. In addition, the company's resource allocation is inefficient, and its capital allocation is value-destructive, creating a lack of resources for needed growth investments. These issues have created operating structures and a reliance on certain financial outcomes that are deeply ingrained and difficult to change for even the most experienced internal company managers. Deep product and operational experience from outside the company, rather than financial leadership, is required to execute a fundamental turnaround. We hope you share our view that change is urgently needed to avoid permanent damage to the group's iconic brands and market position.

We applaud the steps the company has taken towards becoming a more environmentally sustainable, socially responsible business. But while its efforts in this regard are leading edge, it is to Danone's detriment that the same cannot be said about its corporate governance. The steps towards remedying this are simple and should be uncontroversial. The roles of Chairman and CEO must be separated. Further, proper corporate governance standards require truly independent directors, to the exclusion of former company management. It is standard and prudent that company leadership be able to execute a new plan without inertia from former executives.

We do not take lightly our decision to go public with our views. It is neither our preference nor a feature of our investment strategies. But Danone is beginning yet another re-organization involving a new structure that has not proven successful at other global food companies. Danone may also be considering merger, acquisition or disposal activity that could further complicate or weaken the business. Timing has become critical, and there is an opportunity now to make changes that can reinvigorate the company.

Given the lack of consumer goods experience on the Board of Directors, we have taken the initiative to design a plan in consultation with Jan Bennink, an industry executive who has been in a leadership position at two of Danone's three businesses. Mr. Bennink has a history of growth and innovation, as evidenced by the value created while President of Danone's dairy division (now EDP) and while CEO of Numico, currently Danone's specialized nutrition business. Our plan is based on fundamental, long-term growth and value creation. It is not based on financial engineering, a break-up of the business or the sale of the company. It is designed to grow the value of the company for all stakeholders over the medium to long term. We are eager to share our plan with you and the rest of the Board of Directors at your earliest convenience, and prior to any fundamental decisions' being made about the future of Danone or its leadership. We look forward to continuing our engagement with you and the rest of the Board of Directors.

For media enquiries:

Greenbrook (London)
Andrew Honnor and Rob White
artisan@greenbrookpr.com 
+44 207 952 2000

Steele & Holt (France)
artisan@steeleandholt.com 
+33 6 66 58 81 92
+33 6 58 25 54 14