Procter & Gamble Co (NYSE:PG) Barely Won the Nelson Peltz Proxy Battle

October 18, 2017, 13:14 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Procter & Gamble Co (NYSE:PG) recently voted on whether to give Nelson Peltz, an activist investor from Trian Fund, a seat on its board. The initial vote results indicated that Trian had lost its proxy battle, which meant that Nelson Peltz would not get a seat on PG’s board.

Article Summary

Proctor & Gamble won a vote to deny Trian Fund a seat on its board.

The company really needs to change how it operates for future profitability.

Nelson Peltz would have been good for PG.

Here’s the trading report on PG.

The markets immediate reaction to the announcement of the vote results was a slight decline in PG’s stock price. This was an indicator that most investors wanted Nelson Peltz on the PG board as an activist investor. Some analysts believe that without Peltz, PG will remain bloated and overvalued.

The general market consensus is that PG could have benefitted immensely from having Trian on its board. However, this does not mean that all activist investors have a good influence on the companies they try to change, but in this case Nelson Peltz was exactly what PG needed.

Firstly, the company has stagnated in terms of generating higher revenues and profit margins, while its overall costs have remained stagnant. The company’s is not doing well as even the Dow Jones Industrial Average has outperformed the company in the recent past.

The company faces stiff competition in various business segments from other consumer goods companies such as Church & Dwight Co., Inc. (NYSE:CHD), Colgate-Palmolive Company (NYSE:CL) and Revlon Inc (NYSE:REV).

Procter & Gamble could have benefitted immensely from Nelson Peltz’s experience on the boards of other consumer goods companies such as Mondelez and Heinz among others. However, the company’s refusal to give Peltz a seat on its board is an indicator that the company’s management does not want to change how they operate.

For a company as huge as PG, it is quite difficult to maneuver easily, which means that most of the growth achieved by such companies is generated via cost-cutting measures as well as restructuring. These were the same strategies that Nelson Peltz would have pushed for their implementation once he got the board seat, as such strategic changes are crucial for PG’s future profitability.

Therefore, PG might have won the battle for a board seat against Nelson Peltz, but this win might cost the company more than they can imagine. It remains to be seen whether PG is a good investment at its current valuation.

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