Peltz calls on P&G to reorganise businesses
Billionaire releases 94-page proposal
NEW YORK: The world’s biggest consumerproducts maker is being pressured by one of its largest shareholders to set aside “suffocating bureaucracy” and pursue new brands and online sales.
“Procter & Gamble Co needs to reorganise its business units, invest in smaller, high-growth brands and prioritise its digital strategy,’’ billionaire Nelson Peltz said in a 94-page proposal.
Those recommendations come amid an escalating battle over his push for a seat on the board of P&G, the owner of highrecognition brands including Bounty, Gillette and Tide.
Peltz’s Trian Fund Management owns about $3.5 billion of P&G stock, making the shareholder activist the company’s sixthlargest investor, according to data compiled by Bloomberg.
Peltz is calling for P&G to reorganise into three largely autonomous units: A beauty, grooming and health-care business; a fabric and home-care division; and baby, feminine and family-care products. Each unit would have regional leaders with full control over operations in their areas.
The company is currently comprised of four global business units.
The move would break up P&G’s “matrix” organisational structure, which Trian says slows decision making as well as the company’s ability to respond to market changes.
“P&G has resorted to short-term measures, such as selling brands instead of fixing them, that did not address the root cause of its underperformance,” the New York hedge fund said in a statement accompanying the paper on Wednesday.
“Despite numerous turnaround plans, portfolio changes and chief executive officers, the company continues to suffer from eroding market share, ageing brands, high costs and executive compensation and a suffocating bureaucracy,” Trian said.
P&G said Trian has an “outdated view” of the company and its board and management would review the white paper in more detail.
“The fact is P&G is a profoundly different company than it was just a few years ago,” the Cincinnati-based company said in an emailed statement. “We are much better positioned from all angles.”
“We remain focused on delivering our plan, while preventing anything from derailing the progress we are making to create value for all P&G shareholders,” it said.
P&G, with a market valuation of about $236 billion, is working to transform itself into a more nimble business that can navigate the era of Amazon.com Inc, in which household staples are increasingly likely to be bought online rather than off the shelves of supermarkets and drugstores.
Current CEO David Taylor’s turnaround plan got a dose of credibility in July after P&G’s earnings exceeded Wall Street’s expectations.
Peltz, who’s up for nomination at the company’s annual meeting on Oct 10, is open-minded and receptive to superior ideas about the best path for P&G, according to Trian’s statement.
Among his recommendations, Peltz wants cost cutting at P&G to be redirected to ensure it improves earnings and sales growth, claiming that $10 billion in savings from a 2012 productivity drive hasn’t improved operating results.
Adding him to the board will help ensure the current target of $12 billion to $13 billion in savings will be used more effectively, according to the white paper.
“P&G should acquire and integrate smaller, high-growth brand to reflect a shift in consumer trends toward more local producers,’’ Trian said. “The company should also examine why it has failed to innovate after failing to create a new meaningful brand in nearly 20 years.”