P&G Agrees to Add Activist Investor Peltz to Board

Nelson Peltz waving his hand in speech - photo - December 2017On Friday, Procter & Gamble (NYSE:PG) announced that it will add hedge fund activist investor Nelson Peltz to its Board of Directors in March. The decision comes after a year of bitter proxy fighting between the company’s management and Peltz, who had been critical about poor shareholder returns, increasing operating costs, and deteriorating market share.

Earlier in February, Trian Partners, the investment fund of Peltz, had invested about $3.5 billion in the company to pick up a 1.5% stake in the company. From then onwards, the company was demanding a board seat. Since P&G did not yield to the demands, Trian appealed directly to investors saying the company was too slow to change to the expectation of consumers, while demanding P&G to simplify its corporate structure.

While campaigning among shareholders, Peltz slammed the stifling bureaucracy of P&G and advocated a consolidation of the company’s business divisions from five to three. Peltz requested the company’s shareholders to elect him to the board for a quicker turn around. P&G denied the allegations and stated that a successful restructuring is underway.

In the preliminary proxy vote count conducted in October, Peltz lost by a narrow margin of 0.3%, or 6.2 million votes. The recount results announced on Friday indicated that Peltz fell short of a majority by a mere 498,000 votes. In other words, P&G won the election by a mere 1/40th of 1 percent votes. Still, the company went ahead to offer Peltz a seat on the board, as refusal could prove costly for the company in the long-run. P&G was certain that Peltz would launch a new proxy contest next year, if it successfully blocks him this time. Further, he could bring in new members to the board as well. Thus, P&G agreed to add him to the board. By doing so, P&G has technically avoided a “snake pit” scenario (a term used to indicate a combination of unnecessary expenses, wastage of time, and lawsuits).

The company stated that it will also add Joseph Jimenez, the CEO of Swiss pharmaceutical giant Novartis, to the board of directors. That would take the total number of board members from 11 to 13 in March.

P&G’s regulatory filing revealed that Peltz had agreed the company to continue spending on research and development. Additionally, according to the filing, Peltz had guaranteed not to break up the company or force P&G to shift its headquarters out of Cincinnati.

Commenting on the decision to include Peltz on the board, P&G’s CEO David Taylor told The Enquirer “the shareholders have spoken – it’s time to move forward”.

Peltz stated “I believe in the tremendous potential of P&G. Further, he guaranteed to bring fresh perspectives to the boardroom. Thus, investors are expected to push the stock upwards in the days ahead.

As shown in the price chart below, the stock has broken the resistance at 91.50. The bullishness is confirmed by the rising RSI indicator. Further, the stock is also trading above its 50-day moving average. Thus, we can expect a rally in the stock price.

P&G - Technical Analysis - 18th December 2017

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Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.