Please ensure Javascript is enabled for purposes of website accessibility

Procter & Gamble Co.'s Proxy Fight: What Investors Need to Know

By Demitri Kalogeropoulos - Jul 18, 2017 at 6:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The consumer products giant is being targeted for a shake-up by a billionaire shareholder.

 Procter & Gamble (PG 0.97%) is facing an unusual shareholder challenge. Activist investor Trian Fund, after being turned down in talks with the consumer products giant's management, is going around the executive team and petitioning support directly from shareholders to win a seat on P&G's board of directors.

The move makes P&G the biggest company to ever face a proxy fight, according to The Wall Street Journal. Let's look at what the battle means for investors.

The proxy challenger

P&G's logo.

Image source: P&G.

Trian Fund has a long history of challenging the management teams of underperforming consumer products giants. Led by billionaire investor Nelson Peltz, the group once agitated for a breakup of PepsiCo's snack and beverage businesses, for example.

Peltz and his fund began accumulating P&G shares back in February when it revealed a $3 billion stake in the company. That made P&G just the eighth position in Trian Funds' targeted portfolio of consumer goods stocks. At the time, Trian didn't specify any demands that it might push for, and the consumer products giant didn't take it as a challenge, either. "P&G welcomes investment in our company," a spokesman said.

But in a financial filing this week the fund spelled out its grievances against Procter & Gamble. P&G's "disappointing results over the past decade," it explained, include stock price underperformance, lost market share, and "excessive cost and bureaucracy."

Trian's not wrong

P&G would likely take issue with the third point, considering that management has squeezed $10 billion out of its cost infrastructure since 2012 and is targeting a further $13 billion of cuts over the next few years.

Tide detergent.

Image source: P&G.

Trian's broader complaint is less controversial, though. After all, P&G has trailed the market lately. It has also given up several points of market share from critical sales categories, including a Gillette franchise that's plunged to 65% from 70% in just a few years. Organic sales growth has been stubbornly slow overall, ticking up to just 2% this year from 1% in fiscal 2016.

On the bright side, it's hard to argue that P&G has been complacent about working to meet its growth challenges. In addition to the aggressive cost cuts, management just finished a bold brand-shedding initiative that's whittled the portfolio down to 65 of its most promising franchises from over 160.

Every aspect of its business, from manufacturing to packaging to distribution, is being overhauled and simplified, and the changes have already yielded one of the highest profit margins in the industry. Toss in massive cash returns, and shareholders don't have much to be upset about today.

What's at stake

That's likely a big reason why Trian Fund's demands appear to be narrow. The company isn't advocating that P&G get broken up, that the CEO be replaced, or that it take on tons of extra debt to go on a merger binge. Peltz isn't pushing the company to cut back on marketing expenses or research and development, either. "As a long-term shareholder," the fund argues, "our objective is to create sustainable long-term shareholder value."

Still, Peltz and his team believe P&G needs a shake-up in its culture and its organizational structure, and so they're petitioning shareholders for a seat at the table that might help make those changes possible. The odds are stacked against the activist in this fight. The fund owns less than 2% of P&G's outstanding shares and, even if it somehow wins this proxy fight, it will control just one of the eleven seats on the board of directors.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends PepsiCo. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$146.67 (0.97%) $1.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.