Activist Investor, Trian Partners,
Takes $3 billion Plus Stake in Procter & Gamble (P&G)
The purpose of this communication is to update you on our thinking on P&G given the recent $3 billion plus investment by Trian Partners and lay out how Lenox can help you navigate this.
- Going back to our May 2015 P&G outlook, Lenox made the observation, “Over the next 24 months, if P&G does not begin to grow top line revenue and fix the product pipeline, we believe P&G could come under pressure, again, from investors (including retired senior management who have stock options) and activist investor groups to accelerate headcount reductions, break up the company, or recapitalize the balance sheet. Like GE, there appears to be an opportunity for PG to borrow money at a low after tax cost and use the proceeds to buy back shares. If P&G is willing to consider these more aggressive changes, the share value could increase to above $100.”
- Lenox had indicated there was a 1/3 probability that P&G would attract another activist shareholder group. We believed there were several reasons why this could occur:
- The current capital structure (low debt to equity weighting) and the high dividend (shareholders get taxed twice once at the company level and again at the shareholder level).
- The ongoing struggle for the company to grow top line revenue.
- The slow, incremental approach to cost cutting relative to other CPG companies.
- The number of functions that could be purchased from outside rather than done inside.
- The company’s failure to deliver significant value based on investments in R&D and Product Development.
- The number of senior managers who had retired and received little value for their options. This created a group of willing advisors and consultants to the activist shareholder community.
- The Board’s failure to place enough ongoing pressure on the management team, without outside pressure.
- Potentially attractive economics of breaking the company up into smaller, easier-to-manage business units, with less bureaucracy and overhead.
- A potentially overpaid management group based on the amount of equity and option compensation.
What do we know about Trian:
- They bring a private equity mindset to the public markets.
- They are both credible and effective as activist shareholders.
- They invest primarily in large companies.
- They typically buy at an attractive price and have specific plans and timeframes in mind to significantly enhance shareholder value.
- They managed a focused portfolio, typically between 7-10 investments.
- They have about $10 billion under management.
- The investment in P&G is one of the largest they have ever made.
- They typically build a position and then quietly let management and the Board know they have taken the position. They prefer private dialogue at the appropriate levels rather than public dialogue.
- They are willing to do proxy contests to change governance and the direction of the company but it happens less than 10% of the time.
- They frequently ask for Board representation.
- They have a long history of turnaround and operational experience. They typically bring increased focused on shareholder returns and increased accountability to the shareholder by both the Board and senior management.
- They typically hold investments between 3-5 years and sometimes as long as 8 years.
What do we think the outcome will be:
- We believe this will be good for P&G shareholders and bring greater economic value in a shorter period of time.
- Over the last several years, P&G has frequently traded below intrinsic value. We believe with Trian’s involvement, P&G will frequently trade closer to intrinsic value and perhaps above that.
- We believe Trian will bring transformational change faster. This may include:
- Restructure to the balance sheet
- A change in the dividend
- Break-up of the company
- More aggressive headcount reductions
- We believe the company could trade between $120 and $130/share over the next 36-50 months.
Recommendation if you are a P&G Shareholder or Option Holder:
- Call us for Lenox Recommendations! 513-618-7080 or contact us at firstname.lastname@example.org
Here are some questions you might have if you currently work at P&G:
- What should I know about Trian Partners and their investment stake in P&G?
- The last activist P&G investor was Bill Ackman. How is this different?
- How does this impact my career outlook with P&G? Should I stay or leave?
- If I decide to leave, am I better off leaving now or waiting?
- If P&G has significant restructuring, will my position be eliminated?
- Trian Partners also invested in Kraft Foods. If I use this as a case study, what can I learn?
- If I was considering leaving P&G, should this change my thinking?
- What processes are there to help me rethink and recreate my career?
- How can Lenox Help?
- What should I do next?
We think Lenox’s FinLife Experience needs to be your next step!
- You need Clarity, which you can get through our Money Mind® Analyzer and Honest Conversations ® exercise.
- You need Confidence through your personalized Financial Control Scorecard®, so you know your next move is the best move for your family.
- You need Control, which you will get through our Client Guidebook. The Roadmap outlines what we need to do in the next 12 months, as well as many years down the road.
- You need Coaching, so you feel like this potential change in life was the best opportunity you ever had.
- Lenox is a Fiduciary and unlike Broker Dealers, we only get paid by our clients, not third party fund managers.
- We are a Family Office and provide a full menu of financial services.
- Find out more information about Lenox at our website: http://lenoxwealth.com
- Contact Lenox for Trian Partners Fact Sheet and Trian “White Papers” 513-618-7080 or email@example.com
Past Performance is not indicative of future results.
This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox adviser if you would like additional information.