M4 BARRON’S February 8, 2021
EUROPEAN TRADER
T
here is something to be said in
Emmanuel Faber’s defense.
The 57-year-old chairman and
chief executive ofDanone,
who took the helm of the French food
company in October 2014, has been re-
strained on his compensation. He pre-
sides over a gender-balanced board of
directors, and has been keen to refocus
his company’s brands on “healthy” food
and products.
Has he been too focused on sustain-
able development to the detriment of
shareholder value? That is what an activ-
ist fund, Bluebell Capital Partners,
thinks, and said as much in a letter sent
in November toDanone’s (ticker:
BN.France) board. The letter suggested
that Faber should be replaced with some-
one who will pay more attention to inves-
tors’ concerns.
The numbers suggest that Bluebell
may have a point. Since the month Faber
took over, Danone’s stock price has risen
by 8% to about 55 euros ($66). Compare
that with the performance of rivalNestlé
(NESN.Switzerland), whose shares are up
50% over the same period, orUnilever
(UL), up 73%. Danone is also trailing the
competition on other financial metrics,
such as its price/earnings ratio.
Bluebell’s letter became public when it
was published in January in Challenges,
the French business magazine. That’s
when markets realized that Faber’s an-
nouncement late last year—that he would
restructure the group by selling some as-
sets and shedding 2,000 jobs over time—
may have had something to do with hints
that Bluebell had started agitating.
Danone’s main businesses—baby food,
dairy products such as Activia and its
eponymous yogurt, and Evian mineral
water—remain untouched.
In Faber’s defense, Danone points to
3% organic growth since he took over
and a healthy jump in earnings per share.
But it is little consolation to investors
who are beginning to feel that it isn’t only
Danone, but its CEO, who needs to focus.
In the French business world, Faber
has long vocally advocated that compa-
nies need to embrace sustainable devel-
opment and promote business as a force
for good. Danone last year became the
first of a new legal category of companies,
allowed by a recent French law, called
“enterprise with a mission,” based on the
U.S. model of the benefit corporation,
which is a for-profit company with stake-
holder governance.
It is now part of Danone’s statutory
charter to “improve health through a
healthier portfolio of products and
brands,” protect the planet, “create new
futures” for its staff, and “promote inclu-
sive growth.” That may not necessarily
square well with an activist fund’s con-
cern about shareholder value.
Danone has been protected against
takeovers by the French government
since a failed attempt byPepsiCo(PEP)
more than 15 years ago, so a threat of a
hostile bid can’t force Faber to care about
his investors’ interests. Meanwhile, as
Bernstein analysts have noted, the risk is
that Bluebell’s intervention will distract
the group, since instead of being about
“ ‘can this work’...the debate will shift
toward ‘how long can the CEO last/what
does he need to do to push this away.’ ”
Danone’s water division has been hit
hard by the Covid-19 pandemic, with
sales down 20% in the second quarter of
2020 and 13% in the third. And maybe
those focused on environmental, social
and governance concerns should start
wondering about the carbon footprint
from shipping Evian water bottles to the
U.S. or Asia. In any case, Danone’s focus
on becoming a better company may ap-
peal to long-term investors ready to sacri-
fice a bit of value for the greater good.
Others, in the meantime, might prefer
to support Danone by eating its yogurt
while staying away from its stock.B
By Pierre Briançon
EMERGING MARKETS
Myanmar’s Military Coup
Threatens Supply Chains
T
he military coup in Myanmar
is bad news in the near term
for investors, as supply-chain
interruptions threaten every-
thing from luggage manufacturing to
energy projects.
As recently as last year, Myanmar—
situated between regional heavyweights
India and China, with a coast on the In-
dian Ocean—was seen as a growth story
among frontier markets in Asia. The na-
tion of 54 million people is on a path to
5.7% economic growth this year, after
cooling to 4.2% last year because of the
pandemic, according to the International
Monetary Fund, which sent it $350 mil-
lion in relief funds days before the coup.
Panjiva, S&P Global Market Intelli-
gence’s supply-chain research unit, re-
ports that U.S. imports from Myanmar
reached $1.06 billion in the year through
Nov. 30, up from $245 million in 2016.
Apparel and footwear accounted for
41.4% of that, while luggage was 29.9%.
Fish was third, at 4.4%.
Supply chains could be disrupted for
brands likeSamsonite International
(ticker: SMSEY), the largest importer to
the U.S. from Myanmar, according to
Pinjiva data. Unrest could also affect sup-
ply chains for apparel makers, such as
privately ownedLL Bean, retailerH&M
(HM-B.Sweden),Adidas(ADS.Ger-
many), andVera Bradley(VRA), the
S&P research says.
Myanmar’s military overthrew the
fledgling democratic administration on
Monday, Feb. 1, arresting elected civilian
leaders, including Aung San Suu Kyi,
whose party won 83% of the available
seats in Parliament inNovember.
Myanmar’s fragile emergence among
the world’s democracies comes after de-
cades of military rule. The economy is so
young there isn’t much direct foreign
investment—just $4.2 billion in 2019,
according to the Asia Development Bank.
But that is up from $2.7 billion in 2017.
Myanmar’s geography makes it the
perfect location for the competing eco-
nomic and political ambitions of India
and China, says Marko Papic, chief strat-
egist of the Clocktower Group.
The country is among those in China’s
70-nation infrastructure-spending proj-
ect called Belt and Road. And manufac-
turing is moving from higher-cost facto-
ries in China to Myanmar, Vietnam, and
other locations. China and India are
spending a collective $2 billion to build
deepwater ports, within 40 miles of each
other, on Myanmar’s coast.
China’s port will give its shipping
interests easier access to the Indian
Ocean than sailing through the busy
South China Sea and Malacca Straits,
Papic says. India’s port will connect it
more closely to its far-flung provinces
that are landlocked between Myanmar
and Bangladesh.
Thailand is a close trading partner—
and has seen military coups of its own in
recent years. Japan, the U.S., Australia,
and Singapore have increased energy and
infrastructure investments in the area,
according to S&P Global Platts. A Japa-
nese consortium, includingMarubeni
(8002.Japan),Sumitomo(8053.Japan),
andMitsui(8031.Japan) is working on a
liquefied natural gas-to-power project in
Myanmar. AndChevron(CVX) is joining
with France’sTotal(TOT) in Myanmar’s
Yadana offshore natural-gas field.
U.S. President Joe Biden might put
sanctions on Myanmar, which also has
been criticized for human-rights abuses,
particularly the alleged ethnic cleansing
of Muslim Rohingya.
Sanctions might burden companies
manufacturing goods in the country, but
the longer-term investment trends, espe-
cially those supported by China and In-
dia, are unlikely to change course. If the
U.S. backs away, these other countries
would be only too happy to step up, says
Clocktower’s Papic. B
By Liz Moyer
Danone Responds to
Activist’s Call for Change