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 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 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.
Business on 07/18/2017