P&G ON KNIFE EDGE AS BOARD VOTE LOOMS
Company execs claim hedge fund chief motivated only by short-term gains
ACOSTLY months-long battle over the direction of one of America’s biggest companies culminates tomorrow with a shareholder vote at Procter & Gamble (P&G) headquarters in Cincinnati.
The fight pits the maker of Gillette razors and Olay soap against activist investor Nelson Peltz, 75, a billionaire hedge fund chief who has pitched himself as the outsider needed to reignite P&G, the largest company by market capitalisation ever to face a proxy battle.
The grizzled veteran of highprofile boardroom brawls accuses the company of operating with excessive cost, being weak on innovation and missing the boat on key shifts in consumer behaviour.
Peltz, whose firm Trian Partners holds 1.5 per cent of P&G shares, attributes declining market share in key businesses to P&G’s “slow moving and insular culture”.
His campaign has been fortified by support from respected proxy advisory services, including Glass Lewis, which said a new voice might help reinvigorate a giant that appears to suffer from a “degree of complacency”.
P&G counters that Peltz’s campaign is based on an outdated perspective on the company and ignores key hires of outsiders as well as progress since its decision in 2014 to divest dozens of underperforming products in order to target giant brands that resonate best with consumers.
Company executives also say Peltz’s campaign seems to be motivated mostly by short-term gain to the potential detriment of long-term performance.
Whoever wins, the battle has been costly. P&G has estimated that it will spend US$35 million (RM148.42 million) to try to keep Peltz off the board, while Trian has said it expects to spend US$25 million, according to securities filings.
P&G has reported revenue declines for the last three years, pointing to the drag from the strong dollar that has caused it to underperform against European rivals Unilever and L’Oreal in some key benchmarks.
But macro conditions were improving for P&G due to the declining dollar, said CFRA Research analyst Joe Agnese, who praised some of Peltz’s ideas, but also saw benefit in giving management more time.
Among his charges, Peltz has hit P&G for misreading United States shaving, where P&G stalwart Gillette has lost market share to upstart digital companies such as Dollar Shave Club, which was acquired last year by Unilever.
In China, P&G was slow to perceive a shift among consumers to “trading up” to premium diapers. Part of the problem, according to Peltz, was that P&G was too slavish towards big brands at a time when they were in decline and small and local brands were ascendant.
“Consumers used to trust big brands,” said Trian in an investor presentation. “Many millennials now distrust big brands and seek out purpose-led brands.”
P&G has acknowledged some missteps, conceding that it did not perceive the shift in China. But it has unveiled its own direct-to-consumer shaving programme under Gillette.
The company pushed back on Peltz’s attacks on big brands, saying that the best-known names dominate smaller format markets in urban areas, a key growth venue.
Better known names were also more likely to appear on the first page of major e-commerce sites, said Taylor.
He rejected the depiction of P&G as weak on innovation, saying launches of major new incontinence and detergent performed better in consumer surveys as sub-brands under “Always” and “Downy”, rather than as new product launches.
Taylor said he respected Peltz, but that much of the activist’s thinking appeared to be framed by his experience with companies like PepsiCo and Heinz.
“What he most of the time talked about are food examples, which are very different from the business we are in,” said Taylor . “I think he’s projecting food onto our business.” AFP