Struggles at P&G draw scrutiny of activist investor

Those struggles attracted the attention of Nelson Peltz, a billionaire investor & shareholder

Tide detergent dominated the American laundry room for decades and helped make Procter & Gamble (P&G) a consumer products behemoth.

But consumers have increasingly been shunning premium-priced brands like Tide for cheaper versions of laundry detergent. And the detergent market is just one of many in which P&G is battling to keep bargain-hunting customers.

Across a number of its mission-critical, multibillion-dollar product lines — from Pampers diapers to Olay skin creams to Gillette razors — P&G is fighting to retain its market share.

Those struggles have now attracted the attention of Nelson Peltz, a billionaire investor and activist shareholder.

Arguing in a regulatory filing that the company was in need of a shake-up, Peltz announced on Monday that he was seeking a seat on the board of P&G. His investment firm, Trian Fund Management, disclosed a $3.5 billion stake in February.

The filing signals a ratcheting-up in the size of the corporate targets of activist investors, who through behind-the-scenes cajoling or sometimes high-profile public proxy wars try to force companies to change their strategies with an eye toward profits for themselves.

Activist investing has attracted larger and larger pools of money, allowing managers like Peltz to hunt for ever-bigger corporate game. A proxy fight at P&G, which has a market value of nearly $225 billion, would be among the biggest in corporate history.

And P&G, based in Cincinnati, is merely the latest consumer-driven company to capture the attention of activist investors.

Last month, Daniel S Loeb’s hedge fund, Third Point, said he would agitate for changes at Nestlé, and Jana Partners had earlier pressured the retailer Whole Foods to revamp its board. Whole Foods ultimately announced that it would sell itself to Amazon.

This is not the first time that P&G has faced activist pressure: Billionaire William A Ackman pushed the board to oust Robert A McDonald as chief executive in 2013, prompting McDonald’s predecessor, Alan G Lafley, to return to the post from retirement.

Companies with mature consumer brands — like P&G, with its Tide detergent and Gillette razors — can be ripe targets for activists because their days of surging growth are often well behind them.

While firms may want to keep the brands, activist investors tend to be more aggressive in their approach. They often look for ways to sell the brands and reinvest in new technologies or brands that can generate better growth opportunities, said Damien Park, a managing director at Spotlight Advisors, a firm that consults with firms and funds on activist campaigns. (Park is not involved in Peltz’s crusade with P&G.)

That P&G has become the quarry for activist investors is a sign of how far the once-iconic giant has fallen.

For years, P&G attracted the best-and-brightest marketing MBAs from the nation’s top schools. It spurred many a Harvard Business School study of its internal methodologies and disruptive innovations. And it was the home to many big consumer hits, like the Swiffer duster and Crest Whitestrips.

But thanks in no small part to lackluster economic growth overseas, combined with a strong dollar, P&G has had 13 consecutive quarters of sales declines. Its shares have lagged behind the Standard & Poor’s 500-stock index.

The company is on its third chief executive, David Taylor, in eight years. It is slashing billions of dollars in costs and shrinking its work force.

To meet the challenges, P&G has moved quickly to reduce its portfolio of brands, selling about 40 beauty brands, including CoverGirl makeup and Clairol Nice ‘n Easy hair colouring, to Cody last year.

But analysts say what has gone missing from P&G is innovation, new products or designs that will spur top-line growth.

“Olay hasn’t grown in years,” said Mark Astrachan, an analyst with Stifel Financial. “Pantene has been relaunched I don’t know how many times at this point. On shaving, it was not focused on the fact the market was moving online and to products offered at a lower price point. It didn’t launch a shaving club until it had lost considerable market share.”

And while the company is beginning to lower the prices of its goods to compete with less expensive products, the prices of its brands are, on average, 40 per cent higher than the average price in the category, said Ali Dibadj, an analyst at Bernstein Research. Tide is twice the average price in the laundry detergent arena, Dibadj said.

For now, Peltz has emphasised cutting costs and trimming the layers of management bureaucracy at P&G, but not much else.

©2017 The New York Times News Service