2017-07-17 08:46:02
Procter & Gamble Faces Showdown With Activist Investor Peltz

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

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

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 often give activists ideas about which companies to take on.

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

Mr. Peltz and his partners at Trian are among the best-known activists, having pressed for change at a number of high-profile companies. Yet Trian carries a reputation as a constructive critic, often shunning proxy fights in favor of behind-the-scenes discussions with management at companies including General Electric and the investment bank Lazard.

Trian has waged just two board challenges since its inception in 2005. It claimed two of the five board seats that it had sought at H. J. Heinz in 2006, but failed to get any spots on the board of DuPont in 2015. (DuPont’s chief executive at the time, Ellen J. Kullman, retired five months after that proxy fight.)

This is not the first time Procter & Gamble has faced activist pressure: The billionaire William A. Ackman pushed the board to oust chief executive Robert A. McDonald in 2013, forcing Mr. McDonald’s predecessor, Alan G. Lafley, out of retirement and back as chief.

The consumer goods giant, 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.

In an email statement on Monday, Procter & Gamble said that it had held “an active and constructive dialogue” with Trian. The Cincinnati-based company 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.”

Over the past five years, Procter & Gamble’s stock price has lagged behind the Standard & Poor’s 500 stock index, which rose 81.5 percent compared to the company’s increase of almost 34 percent. Sales at the consumer-products 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 premarket trading in New York on Monday. The company carried a market valuation of nearly $224 billion.

Trian said it was not seeking to break up Procter & Gamble, a well-worn tactic of activists. Nor was it seeking to replace the company’s chief executive of less than two years, David S. Taylor.

“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 Procter & Gamble has introduced initiatives aimed at bolstering its stock price, Trian has argued that they do not go far enough, contending, for example, that the company’s $10 billion cost-savings push from 2012 did little to improve sales growth. Trian added that it had little faith in the effectiveness of Procter & Gamble’s promise of additional cuts of up to $13 billion.

What is needed, Trian asserted on Monday, was fresh blood on Procter & Gamble’s 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.