P.&G.is increasing its online presence and has fought back with price cuts, but its stock price has lagged competitors’ and the Standard & Poor’s 500 index in the past year, and – as Mr. Peltz points out – over the last decade.
In reiterating its Hold rating on the shares, DB says PG “has missed a number of big industry changes over the last several years, notably share losses in USA men’s shaving and China broadly, but we believe management is now more focused than ever to bring superior innovation to the market to drive share gains”.
In a statement Monday, Procter & Gamble said it had held “an active and constructive dialogue” with Trian. Trian said it was concerned that $13 billion of identified cost savings would not materialize given an “overly complex organizational structure and a slow-moving and insular culture”. “The board is confident that the changes being made are producing results, and expresses complete support for the company’s strategy, plans, and management”.
P&G has increased operating profit margins, to 20.6% previous year from 19.1% in 2011, and says it ranks third in the industry – behind competitors that also charge high premiums. Mr. Ackman then sold his shares.
Weak Total Shareholder Returns.
Some of Peltz’s previous campaigns with US corporate giants have yielded results. One of Trian’s most recent high-profile campaigns was at DuPont, where the fund argued as early as 2013 that the company should be broken up to realize shareholder value. Trian got no seats, but the chief executive was out five months later, and DuPont announced a merger with Dow Chemical that would lead to a breakup. Trian said that P&G’s last cost-cutting plan, launched in 2012, failed to impact profit or sales growth.Barclays noted on Monday that Trian is working with former P&G CFO Clayt Daley, a consultant on the campaign who could become a potential board candidate to replace Peltz as part of the negotiations. Trian contended that Procter & Gamble needed to cut costs and trim its bureaucracy.
It’s not the first time P&G has been targeted for a shake-up.
Trian, which describes itself as one of P&G’s largest shareholders, said the Cincinatti-based consumer goods group had suffered “disappointing results over the past decade” and that it wanted to “help the company address the challenges it is facing”. Meanwhile, the company is losing market share in various categories yet it’s the only company in the world that boasts over 20 billion-dollar brands.
However, absent strong growth more than five years into the strategy, P&G represented a large target for dissatisfied Wall Street investors.