De­nied seat, P&G in­vestor files for vote

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - MICHAEL J. DE LA MERCED

The bil­lion­aire in­vestor Nel­son Peltz dis­closed Mon­day that he is seek­ing a board seat at Proc­ter & Gam­ble Co., set­ting up one of the big­gest show­downs be­tween an ac­tivist share­holder and a cor­po­rate ti­tan.

It is yet an­other sign of the grow­ing power of top ac­tivist in­vestors, who have suc­cess­fully chal­lenged ever-big­ger com­pa­nies into chang­ing their cor­po­rate strate­gies, prof­it­ing along the way.

In a reg­u­la­tory fil­ing, Peltz’s in­vest­ment firm, Trian Fund Man­age­ment, ar­gued that Proc­ter & Gam­ble, the con­sumer prod­ucts gi­ant, had un­der­per­formed fi­nan­cially and was in need of a shake-up. Trian con­tended that P&G needed to cut costs and trim its bu­reau­cracy. Trian dis­closed in Fe­bru­ary that it had taken a $3.5 bil­lion stake in the com­pany.

Ac­tivist in­vestors have be­come forces to be reck­oned with on Wall Street in the

● past decade, tak­ing on big­ger tar­gets and of­ten get­ting re­sults. Their suc­cess in shak­ing up com­pa­nies has drawn the sup­port of other share­hold­ers. Even staid mu­tual funds that once kept their dis­tance now give ac­tivists ideas about which com­pa­nies to take on.

The past 12 months alone have seen Daniel S. Loeb’s hedge fund, Third Point, push for changes at Nes­tle and Paul E. Singer’s firm, El­liott Man­age­ment, take on Sam­sung and the min­ing gi­ant BHP Bil­li­ton.

P&G, whose prod­ucts in­clude Crest tooth­paste and Gil­lette ra­zors, has strug­gled in re­cent years to win over Wall Street an­a­lysts wor­ried by in­creased com­pe­ti­tion and de­clin­ing mar­ket share, par­tic­u­larly in the United States. The com­pany has sought to markedly slim down, an­nounc­ing in 2014 that it would cut around 100 brands.

Over the past five years, P&G’s stock price has lagged be­hind the Stan­dard & Poor’s 500 index, which rose 81.5 per­cent com­pared with the com­pany’s

in­crease of al­most 34 per­cent. Sales at the con­sumer­prod­ucts con­glom­er­ate have de­clined dur­ing the past four years, and the com­pany has cy­cled through three chief ex­ec­u­tives in eight years.

Shares in Proc­ter & Gam­ble were lit­tle changed in trad­ing in New York on Mon­day, ris­ing 45 cents to close at $87.55. The com­pany has a mar­ket val­u­a­tion of nearly $224 bil­lion.

The world of con­sumer prod­ucts and food has proved es­pe­cially at­trac­tive for ac­tivist in­vestors of late.

Chang­ing con­sumer tastes have left many com­pa­nies scram­bling for new strate­gies, while in­creased com­pe­ti­tion has led to calls for the busi­nesses to cut costs and slim down their man­age­ment ranks.

Peltz and Trian have long been in­ter­ested in con­sumer com­pa­nies, hav­ing taken on Heinz, Pep­siCo and the snack food maker Mon­delez In­ter­na­tional over the past decade. (In­deed, Trian had pushed for a merger of Pep­siCo and Mon­delez, al­though it later dropped the idea.)

Since tak­ing a stake in P&G in Fe­bru­ary, Trian had held about a half-dozen meet­ings

with the com­pany, out­lin­ing its ar­gu­ments, ac­cord­ing to two peo­ple briefed on the mat­ter. The com­pany made its own coun­ter­ar­gu­ments, in­clud­ing ask­ing for more time to prove the worth of its cur­rent strat­egy.

Those dis­cus­sions reached a head last week, when P&G for­mally de­clined to give Peltz a seat.

In an email state­ment Mon­day, the Cincin­nati-based com­pany said that it had held “an ac­tive and con­struc­tive di­a­logue” with Trian. It also said that its board was “con­fi­dent that the changes be­ing made are pro­duc­ing re­sults, and ex­presses com­plete sup­port for the com­pany’s strat­egy, plans, and man­age­ment.”

Trian said Mon­day that it was not seek­ing to break up P&G, a well-worn tac­tic of ac­tivists. Nor was it seek­ing to re­place David Tay­lor, who has been the com­pany’s chief ex­ec­u­tive for less than two years. If Peltz is elected, Trian said, the firm would renom­i­nate the di­rec­tor who had been de­feated, ef­fec­tively ex­pand­ing P&G’s board by one seat.

“As a mem­ber of the board, Mr. Peltz would seek to help

the com­pany in­crease sales and prof­its, re­gain lost mar­ket share, and ad­dress the com­pany’s struc­ture and cul­ture, and we be­lieve that he can con­trib­ute far more value op­er­at­ing from within the com­pany’s board­room than by merely ad­vis­ing the com­pany from the out­side,” the in­vest­ment firm wrote in its proxy ma­te­ri­als.

Al­though P&G has in­tro­duced sev­eral ini­tia­tives aimed at bol­ster­ing its stock price, Trian has ar­gued that they do not go far enough. It has con­tended, for ex­am­ple, that the com­pany’s push to trim $10 bil­lion in costs from 2012 did lit­tle to im­prove sales growth. Trian added that it had lit­tle faith in the ef­fec­tive­ness of P&G’s prom­ise of ad­di­tional cuts of as much as $13 bil­lion.

What Proc­ter & Gam­ble needed, Trian as­serted Mon­day, was fresh blood on its board.

“It is Trian’s strong view that the ad­di­tion of a mo­ti­vated in­de­pen­dent di­rec­tor that has a ma­te­rial own­er­ship stake and rel­e­vant in­dus­try ex­pe­ri­ence can be a valu­able re­source for over­com­ing the root causes of these chal­lenges,” the firm said in its state­ment.

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