Shares of Nestle (NSRGY) jumped in morning trading after activist investor Dan Loeb's Third Point took a $3.5B stake in the food-maker. Third Point is urging Nestle to improve margins, repurchase shares and dispose of non-core business units.

THIRD POINT STAKE NEWS: Dan Loeb's Third Point published a letter on Sunday, confirming that it has taken a stake in Nestle amounting to over $3.5B. Third Point, which previously pressed for change at companies like Yahoo (YHOO), said that while Nestle's category and geographic mix is "excellent" and offers the company "a long runway for growth," Third Point is also seeking changes at the company as the company has "significantly" underperformed most of its consumer staples peers in the U.S. and Europe and has "remained stuck in its old ways." Third Point is urging Nestle to create "enormous" value for shareholders over the next several years by improving productivity, returning capital to shareholders, reshaping its portfolio by divesting "a number" of non-core assets and selling its 23% stake in L'Oreal (LRLCY).

Third Point said it "intends to play a constructive role to encourage management to pursue change with a greater sense of urgency." Nestle, like many of its peers, is struggling with a slowdown in emerging markets and increasing competition. After reporting disappointing annual sales earlier this year, new CEO Dr. Ulf Mark Schneider ditched the company's long-standing sales target, adopting a more cautious tone. Nestle is now aiming for 2%-4% underlying sales growth this year. Third Point noted in its letter that Schneider, who joined the company from Fresenius SE, has an "impressive track record of value creation," but believes that in order to succeed, Schneider will "need to articulate a decisive and bold action plan that addresses the staid culture and tendency towards incrementalism that has typified the company's prior leadership and resulted in its long-term underperformance." Third Point said that Nestle should set a formal margin target range of 18%-20% by 2020 in order to help improve productivity.

WHAT'S NOTABLE: Earlier this month, Nestle said it would explore strategic options for its U.S. confectionery business, including a potential sale. The unit includes local chocolate brands such as Butterfinger, BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and SnoCaps, as well as local sugar brands such as SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts and does not cover Nestle's Toll House baking products. Commenting on the Third Point's letter to Nestle, CNBC's David Faber, citing sources, said this morning that Loeb has already held a "series" of meetings with Nestle and his tone and urgency are different so far than they were with his last activist target, Honeywell (HON). A Nestle spokesperson told Reuters that the company keeps an open dialogue with all shareholders and that it is "committed" to executing its strategy and creating long-term value for shareholders.

ANALYST COMMENTARY: Jefferies analyst Martin Deboo recommends "caution" on the news of the activist stake, telling investors in a note that Third Point's targets will be "non-trivial to achieve" and its influence over the company is "relatively dilute."

Separately, JPMorgan analyst Ken Goldman expects shares of Kraft Heinz (KHC), Conagra Brands (CAG) and Dean Foods (DF) to rally today on hopes of a potential accretive deal for some of Nestle's assets. The analyst thinks General Mills (GIS) shares may drop slightly on speculation that Nestle sells Cereal Partners Worldwide, which he believes would hinder the company's ability to grow cereal internationally. Goldman also thinks Pinnacle Foods (PF) could trade down slightly with Conagra having "another potential dance partner" to do a deal.

PRICE ACTION: Nestle shares trading in New York are up just over 4% this morning to $88.26. General Mills, Unilever (UN, UL), Mondelez (MDLZ) are also higher, as are Kraft Heinz, Conagra and Dean Foods.