Loeb sees hidden value in Colgate's subsidiary, Hill's Pet Nutrition, a pet food company, if it were spun off.
The investor believes as a stand-alone business, Hill's could deliver even faster growth and better margins, and could achieve a valuation close to $20 billion on its 2023 numbers, Loeb will say in a forthcoming investor letter, according to sources.
Colgate has been investing in its pet food business, its fastest-growing unit. Hill's has always pitched itself as backed by "science," which from a brand perspective is seen as on trend.
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The activist and hedge fund manager added that consolidation in the consumer health sector points to more opportunities for Colgate. Loeb said Colgate could become part of the current M&A "minuet" in consumer health.
Shares of Colgate jumped 1% on Tuesday. The stock is still down about 15% this year.