P&G Back in Activist Crosshairs as Peltz's Trian Buys Stake

(Bloomberg) -- Almost five years after facing activist investor Bill Ackman, Procter & Gamble Co. has another agitator knocking on its door.

Trian Fund Management, co-founded by Nelson Peltz, revealed a new stake in the consumer-products giant late Tuesday, sending shares up as much as 3.7 percent Wednesday. While the holding Trian disclosed for the period through Dec. 31 was just $539.5 million, the fund has been buying more this year and the investment is now valued at more than $3 billion, according to a person familiar with the situation who wasn’t authorized to speak publicly.

P&G, the 179-year-old maker of Tide detergent and Pampers diapers, fits into Trian’s playbook of targeting mainly consumer, industrial and financial companies -- in particular conglomerates as well as food and beverage corporations. The hedge fund, founded in 2005 by Peltz, Peter May and Ed Garden, manages more than $10 billion in assets and prefers to shun the activist label, instead referring to itself as a highly engaged shareholder.

In targeting P&G, known for its sclerotic and insular culture, Trian is taking aim at company that’s struggled for years to regain its footing as it fends off competition from newer and low-cost competitors such as Honest Co. and Church & Dwight Co. David Taylor came on as chief executive officer in November 2015, the third leader in five years, with a pledge to bring in more outside executives and set higher product standards.

“Packaged-goods companies in general are confronting unprecedented changes in their marketplace,” including younger shoppers who aren’t as brand-loyal and want natural products, said David Garfield, head of the consumer-products practice at consulting firm AlixPartners LLP. “P&G has done a lot, and I think they should get full credit for making meaningful changes to date,” but companies in the sector need to be more nimble at adjusting to those changes, he said.

Cutting Costs

Taylor’s predecessor, A.G. Lafley -- a legendary chief executive who expanded the company’s global presence as well as its portfolio -- had come back to P&G for a second tenure in 2013. During his second term, Lafley divested non-central businesses such as pet food and batteries along with about 100 smaller brands. He also accelerated a $10 billion cost-cutting program that his predecessor had undertaken.

P&G and its investors are now positioned to take advantage of that restructuring, along with an additional $10 billion in expense cuts announced by Taylor last year, said Erin Lash, an analyst at Morningstar Inc. in Chicago.

Sales from premium products like Gillette Fusion ProGlide razor blades helped the company post better-than-expected second-quarter earnings, P&G reported last month.

Given that momentum, “we don’t feel it is likely that Peltz will call for additional steps to transform the business at this time,” Lash said. But if the company can’t sustain the gains, he could push for further cost cuts and divestitures, she added.

White Papers

P&G wasn’t aware of Trian’s stake in the company before Tuesday’s filing and hadn’t had contact with the investor before it was revealed, according to a person familiar with the matter who asked not to be identified discussing private information. A spokeswoman for Trian said the fund isn’t commenting on its new investment in P&G.

In past campaigns, Trian has released detailed white papers on some of its targets, usually insisting that one of its principals joins the board. Bill Schmitz, an analyst at Deutsche Bank AG, expects a paper on P&G to follow the filing, he wrote in a research note. That paper would probably detail the investment case and look at the strategic and financial benefits of splitting up the company, acquisition opportunities and external management appointees, Schmitz wrote.

Sysco Stake

Trian’s biggest disclosed holding is food distributor Sysco Corp., in which it took a stake after a planned takeover of rival US Foods was nixed.

When it disclosed the initial Sysco stake, Trian said the company could improve its operating margins, consider borrowing money to return more capital to shareholders and “better align management compensation with corporate performance.”

Peltz and Trian partner Josh Frank were added to the board within a week.

The fund has also invested in PepsiCo Inc. -- a stake that in May it said it no longer held -- as well as Wendy’s Co., Mondelez International Inc. and General Electric Co.

One of Trian’s most recent high-profile campaigns was at DuPont Co., where the fund argued as early as 2013 that the company should be broken up to realize shareholder value. Peltz said on CNBC in 2015 he was “thrilled” with DuPont’s $60 billion merger with Dow Chemical Co.

Ackman, known for seeking management changes and company breakups, disclosed a $1.8 billion stake in P&G in July 2012 and pushed to replace then-CEO Bob McDonald, who was in the midst of a $10 billion cost-cutting program. P&G did get rid of McDonald the following year and bring back Lafley.

To contact the reporters on this story: Elizabeth Fournier in London at efournier5@bloomberg.net, Lauren Coleman-Lochner in New York at llochner@bloomberg.net, Beth Jinks in San Francisco at bjinks1@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Mark Schoifet