Here's What Nelson Peltz Could Do With Procter & Gamble

A White Paper In The Offing

Based on what Trian did with PepsiCo, Inc. PEP, analysts Bill Schmitz, Faiza Alwy and Jon Keypour said they expect a white paper, detailing the investment case, including:

• Strategic and financial benefits of splitting up the company.
• Exploration of M&A options for the businesses.
• Productivity and other cost savings opportunities, potentially enabled by new management appointees from outside the company.

Related Link: Billionaire Nelson Peltz's Trian Fund Holds These 11 Stocks

Fundamentals Shaky Despite Cost-Focus

Deutsche Bank noted that since Bill Ackman's original involvement with Procter & Gamble in July 2012, the company has been its own activist, at least on the cost front. The motive was to keep activist investors at bay.

However, the firm is of the view that absolute and relative organic growth is poor. Market share trends, though improving, have been negative and self-inflicted wounds in big markets like China are unacceptable, the firm added. The firm believes growth challenges require a lot more than celebrity board members and more aggressive cost savings.

Deutsche Bank Doesn't See Value In Split

Deutsche Bank doesn't see much benefit coming out of a splintering. According to the firm, three $20 billion+ sales businesses are no more agile than one $70 billion business. With the company sharing services infrastructure and other global functions, the firm believes the disynergies associated with a split would far surpass any benefit.

While noting that there would be clamor for a split, Deutsche Bank suggested to investors to ask themselves how much value will actually be lost in trying to make the sum of the parts, each with its own cost structure, greater than the whole.

According to Deutsche Bank, the best way for Procter & Gamble is to prove its competence to grow its business and not trim more costs or introduce further financial engineering. This recommendation comes against the backdrop of the company already being on its second $10 billion productivity program in less than a decade, with cost structure no longer being a problem as it was earlier.

Deutsche Bank has a Hold rating and a $90 price target for the shares of Procter & Gamble.

At the time of writing, Procter & Gamble shares were rallying 3.13 percent to $90.59.