- Colgate-Palmolive ( NYSE: CL ) should reject a suggestion from activist Third Point that it separate its Hill's Pet Nutrition business , according to analysts.
- Third Point's Dan Loeb is advocating that Colgate ( CL ) separate its Hill's pets business and believes the segment could be valued at $20 billion on its own, according to a 3Q investor letter from Tuesday. Third Point has taken a stake of about $1 billion in Colgate, according to CNBC's David Faber.
- "Whilst there may be some short-term logic to realizing an elevated value for Hill's today, given recent elevated pet-care growth during the pandemic, we struggle to see how divesting its best business is likely to be at all beneficial to CL shareholders over the long-term," Bernstein analyst Callum Elliott, who has a market perform rating and $80 price target on CL, wrote in a note on Tuesday.
- Elliott highlighted that Hill's has grown at a +8 CAGR over the past five years, compared to the +2.5% that the rest of Colgate has grown over the same period.
- "There's a meaningful hidden value in the company's Hills Pet Nutrition business, which we believe would command a premium multiple if separated from Colgate's consumer assets," Third Point's Loeb wrote in the letter.
- While Hill's business would likely get a premium valuation as a standalone company, "Hill's business benefits greatly from being part of the broader Colgate's organization in terms of regulatory and science expertise, route-to-markets, and general overhead," RBC analyst Nik Modi wrote in a note on Tuesday.
- Deutsche Bank analyst Steve Powers wrote on Tuesday that he sees a low probability of Colgate ( CL ) separating the Hills business, given CL's belief in synergies between Hill's and CL's consumer segments. He does find that Third Point's value of $20 billion for Hill's is consistent with his sum-of-the-parts analysis of Colgate. He has a buy rating and $85 price target on CL.
- Investors may hear more about Colgate's ( CL ) plans for Hill's when it reports Q3 results next Friday.
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Colgate should retain its Hill's pets business, reject Third Point suggestion - analysts