Trian White Paper Details 'Root Causes' Of P&G's Woes

In a white paper that rips into Procter & Gamble’s “track record of underperformance” — including selling brands instead of fixing them — Trian Fund Management yesterday called for the reorganization of the company into three “largely autonomous” companies and urged shareholders to elect Nelson Peltz, its CEO and founding partner, to its 12-member board.

As its return to shareholders has lagged over the past decade, P&G has trotted out ineffective remedies, according to the broadside published on revitalizepg.com, “but it is still suffering from the same factors that have led to consistent underperformance: eroding market shares, aging brands with a lack of breakthrough innovations, excessive costs, misaligned executive compensation and a suffocating bureaucracy…,” as a news release sums it up. 

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Trian, which has a $3.5 billion stake in P&G, has been agitating for a seat for Peltz for some time but not laid out specific remedies for the company before yesterday’s screed. 

“Perhaps the most ambitious part of the plan would restructure the organization as three global business units under a ‘lean holding company.’ The three would be divided as beauty, grooming and health care; fabric and home care; and baby, feminine and family care,” writes Leslie Picker for CNBC. “He also wants greater oversight over P&G's cost-savings plan, saying that the last time management tried, they didn’t get a boost in profit or growth.”

P&G fired back in a news release this morning.

“The recently released white paper confirms that Mr. Peltz has a very outdated and misinformed view of P&G….”  It goes on to list six bullet points it claims the white paper “ignores,” including “P&G has leading brands with industry-leading market shares” and “P&G has best-in-class margins.”

As for why they specifically don’t want Peltz on the board, “P&G officials say Peltz isn't proposing anything new they haven't considered or are already implementing,” writes Alexander Coolidge for the Cincinnati Enquirer. “Company officials say they have a strategy that is already beginning to turn around the company and Peltz's presence would be an unwelcome distraction.”

“Both sides are courting investors …. P&G executives say the company already is bringing in outsiders, simplifying its governing structure and cutting costs to free up cash to create and market new products,” write the Wall Street Journal’s Sharon Terlep and David Benoit, who apparently had a beat on what was coming. 

“The problem is that they have lost and are continuing to lose market share,” Peltz told them in an interview last week. “Once you’ve had a consumer and he’s left you, it’s very hard to bring that consumer back.”

“P&G has said Mr. Peltz’s ideas are either ill-informed or retreads of work that is already under way,” Terlep and Benoit continue. “We’re already doing something and he’s jumping on and saying, ‘Do more of it,’” P&G CEO David Taylor told them last week.

On Tuesday, former P&G CEO John Pepper “urged shareholders Tuesday to ‘vote all your blue proxy cards’ in favor of P&G’s management and against New York hedge fund operator Nelson Peltz,” Dan Monk reports for Cincinnati’s ABC affiliate, WCPO.

“We don’t need someone to come in and try to figure out yet another new plan,” Pepper wrote in a letter. “We just got one. Now is the time to execute.”

Monk continues: “It’s the first of what’ll likely be four CEO endorsements of P&G’s existing strategy, which calls for growing revenue and market share with targeted investments from a 5-year-old restructuring program. CEO David Taylor told WCPO last week that P&G’s ‘last four CEOs’ endorse the plan. Pepper was CEO from 1995 to 1999, followed in that role by Durk Jager, A.G. Lafley and Bob McDonald.’”

Another controversial part of Trian’s proposal is to move some of P&G’s businesses out of Cincinnati. That has local folks up in arms, as might be expected.

“The company fundamentally changed branding and advertising when it introduced ads celebrating moms during the Olympics or teaching young women to reclaim the phrase, ‘like a girl.’ P&G isn’t just another company for Greater Cincinnati, it is part of our DNA,” writes Johnna Reeder, president and CEO of the Regional Economic Development Initiative (REDI) Cincinnati on Cincinnati.com

WCPO’s Monk reports that Peltz & Co. is spending about $25 million in its campaign and P&G will spend $35 million in battling back. We’ll see which way the Tide flows when shareholders convene in Cincinnati on Oct. 10.

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