Procter & Gamble Co. is facing longer odds in its stand-off with Nelson Peltz, the billionaire investor who is vying for a board seat in one of the most contentious proxy fights in years.
Peltz won the approval of prominent shareholder-advisory firm Institutional Shareholder Services, Inc. on Friday, following a similar endorsement from Glass Lewis & Co. the previous week. The firms’ support could give Peltz a crucial edge in persuading P&G’s biggest investors to vote him on to the board during its annual meeting on 10 October.
Convince Shareholders
It now falls to P&G to convince shareholders that its board is doing just fine without Peltz’s meddling. The consumer-products giant has scheduled a webcast on Tuesday, when chief executive officer David Taylor, chief financial officer Jon Moeller and board member Meg Whitman will field questions from investors.
“Change is not warranted when a highly engaged board is overseeing a plan that is working,” P&G said via a statement on Friday. “We firmly believe adding Nelson Peltz to the P&G board would derail our progress.”
Peltz, a founding partner of Trian Fund Management, launched his proxy fight in July, saying that P&G had a “ suffocating bureaucracy” and was performing worse than peers. He has argued that his presence on the board could be the shake-up that the company needs.
P&G is the largest company by market value to face such a fight, but Peltz isn’t calling for a break-up of the business, or suggesting that Taylor be ousted – and unlike with many previous proxy battles, he’s just seeking one board seat.
Bitter Fight
Still, the contest has grown increasingly bitter. Taylor, 59, has argued that Peltz doesn’t understand P&G’s business and hasn’t taken the steps needed to learn more about the company, which produces everything from Crest toothpaste to Gillette razors and Pampers diapers.
In throwing its support behind Peltz, ISS argued that the billionaire could help the company 'look around the next corner and avoid future missteps', according to a 24-page research note on Friday.
'P&G’s board is accountable for several missteps over the past several years,' the firm wrote in a report. '[Those include] its handling of previous CEO successions, its oversight of an M&A strategy that resulted in dozens of acquired brands subsequently being divested, and its failure to prevent the company’s organizational structure from becoming overly complex in the first place.'
“[The board] could benefit from additional diversity of thought and experience,” ISS said.
‘Another Misstep’
The advisory firm also noted that due to the size of Peltz’s holdings – his 1.5% stake accounts for about a quarter of Trian’s assets under management – it’s unlikely that he would be “needlessly disruptive if his actions could negatively impact P&G’s share price”.
When Glass Lewis endorsed Peltz’s bid last week, it said that the investor was a “credible, suitably experienced candidate”. The firm sees the decision to elect him as “low risk” because he would be forced to work constructively with the rest of board.
While it’s not guaranteed that shareholders will be swayed by ISS or Glass Lewis, many institutional investors rely on the firms’ advice when they vote in proxy fights.
P&G’s problems were a long time coming and didn’t start with Peltz, according to Ali Dibadj, an analyst at Sanford C. Bernstein. He said that he and his firm have urged Taylor to cut costs and get more outside help.
“It’s not whether P&G’s improved, but whether, if there’s another misstep, who are the best people on the board,” Dibadj said. "It’s about having somebody who has a shareholder point of view on the board.”
Peltz Campaign
Peltz launched his campaign for a board seat after disclosing a $3.5 billion position in the Cincinnati-based company. Trian then released a 93-page white paper this month, calling for P&G to reorganise into three largely autonomous parts: a beauty, grooming and health-care business; a fabric and home-care division; and a unit focused on baby, feminine and family-care products. Each one would have regional leaders with full control over operations in their areas, instead of the bureaucratic structure that Peltz claims is in place now.
P&G has said that Peltz’s views on the company are “flawed” and “outdated”, and that he would bring little value as a director. It also said that it had examined several different structures, including one similar to the one Peltz has suggested, and determined that it would result in higher costs, lower efficiency and reduced profit.
After several meetings with the 75-year-old Peltz, Taylor said that he was unconvinced that the investor had “genuine interest” in learning about the company.
Few activist investors have had as big an influence on tired US consumer brands as Peltz, whose previous campaigns targeted US ketchup-maker HJ Heinz, former chocolate and beverage giant Cadbury Schweppes, and snack company Mondeléz International, Inc.
Stephen Yacktman, a P&G investor who runs Yacktman Asset Management, has said that he will vote the firm’s shares in favour of electing Peltz. Yacktman’s stake is valued at about $1.4 billion.
In an interview before the ISS endorsement, Peltz reiterated that he’s only seeking one board seat.
“All I’m trying to do is engender good discussion,” he said.
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