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A prominent activist investor this week recommended significant structural changes to boost the profitability of the world's largest food company.

Third Point LLC, the investment firm owned by Daniel Loeb, on Sunday issued a letter to Nestlé shareholders disclosing its ownership of about 40 million shares worth more than $3.5 billion.

Although that stake only amounts to 1.3 percent of the company, according to Bloomberg, the firm said Nestlé was "ripe for improvement and change" should management adhere to its suggestions.

Third Point argued that Nestlé was slow to adapt to changing consumer habits and competition from smaller brands and noted that it underperformed its peers despite "arguably the best-positioned portfolio in the consumer packaged goods industry."

(AP Photo)

"It is rare to find a business of Nestlé’s quality with so many avenues for improvement," the firm wrote.

The firm said that the company should sell its stake in cosmetics giant L’Oréal as part of a long-overdue review of its massive brand portfolio.

"Management must determine which of these businesses are key pillars of growth for the future and then strategically reduce exposure to those that are not," Third Point officials wrote.

The firm also called on Nestlé officials to adopt formal goals for profit margins and leverage.

Although Third Point lauded the elevation of Ulf Mark Schneider to chief executive last year, the firm said that he "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."

Nestlé responded in a statement to Bloomberg that the company will "keep an open dialogue with all of our shareholders and we remain committed to executing our strategy and creating long-term shareholder value.”

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