Procter & Gamble Faces Showdown With Activist Investor Peltz

Procter & Gamble Faces Showdown With Activist Investor Peltz

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

Activist investors have successfully prodded a number of companies to overhaul their strategies.

After Jana Partners began pushing for changes at Whole Foods Market, the grocer subsequently revamped its board. Weeks later, it announced it was selling itself to Amazon for more than $13 billion. Carl S. Icahn’s opposition to a leveraged buyout of Dell Inc. led to a slightly higher takeover price. And Yahoo agreed to consider selling its core operations after a campaign by Starboard Value.

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 only 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 it 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 that Procter & Gamble has faced activist pressure: The billionaire William A. Ackman pushed the board to oust Robert A. McDonald as chief executive in 2013, forcing Mr. McDonald’s predecessor, Alan G. Lafley, to return to the post from retirement.

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.

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 with 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.

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 slash costs and slim down their management ranks.

Mr. 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, though it later dropped the idea.)

Since taking a stake in Procter & Gamble 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 Procter & Gamble formally declined to give Mr. Peltz a seat.

In an email statement on 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 on Monday that it was not seeking to break up Procter & Gamble, a well-worn tactic of activists. Nor was it seeking to replace David S. Taylor, who has been the company’s chief executive for less than two years. If Mr. Peltz is elected, Trian said, the firm would renominate the director who had been defeated, effectively expanding Procter & Gamble’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 Procter & Gamble 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 Procter & Gamble’s promise of additional cuts of as much as $13 billion.

What Procter & Gamble needed, Trian asserted on 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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