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Here's Why Procter & Gamble Is Wrong In Pushing Peltz Away

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Here's Why Procter & Gamble Is Wrong In Pushing Peltz Away

Billionaire activist investor Nelson Peltz thinks Procter & Gamble Co (NYSE: PG)'s current business strategy is flawed, and he has the answers. But the company's management team disagrees and thinks that Peltz's massive 92-page white paper brings no new or credible ideas to the table.

But P&G may be making a mistake in pushing Peltz away, Gadfly's Brooke Sutherland argued. Perhaps most importantly, Peltz's demands aren't "radical" and are in line with the company's ongoing transformations. P&G's hostile approach toward Peltz, generally seen as more collaborative compared to his activist peers, is a bit confusing since Peltz has a solid track record of returns — unlike Bill Ackman who suffered a few recent setbacks.

Related Link: Activists Gonna Activate: Hedge Funds Send Letters To Acorda, Taubman Centers Boards

Meanwhile, Peltz and P&G's long-term investors do have reason to be disappointing with the stock's long-term performance, Sutherland continued. Various brands under the company's umbrella are showing troubling sales trends, which implies the company may benefit from an outside perspective.

In fact, Peltz's idea to split P&G into three business units is "intriguing" and will make each segment more accountable, she suggested. While the company shot down this idea completely noting higher expenses, management offered little explanation as to how it got to this conclusion. After all, the company felt it was a good idea to streamline its 16 different product categories into 10, so why is organizing the company as a whole into three business units an "utterly horrible idea"?

Finally, it is unclear what exactly the company has to lose by adding Peltz's perspective, and his demands for one seat on the board of directors won't account for much at the end of the day.

Peltz Double Downs On CNBC

Speaking as a guest on CNBC's "Squawk Alley" segment on Friday, Peltz stated that market share is among one of the most important metric investors need to be aware of within the consumer space. It is difficult enough for any company to attract new clients, but it is even more difficult to regain a lost consumer who once purchased a brand but then found a cheaper or more attractive product elsewhere.

P&G's top priority needs to be on regaining its lost market share, Peltz emphasized. After regaining what was merely lost, it is at that point management needs to then focus on how to expand its market share and start stealing market share from its rivals instead of giving it away.

To regain market share, P&G needs to re-work its business structure and divide itself into three entities, Peltz made clear. This will better position the entire organization to focus on what matters most: small and local brands that have "some emotion attached to it."

"This is something that P&G does not do well," he said. "In fact, they double-downed over the past couple of years by selling 100 brands. And those 100 brands — small brands, they were bought because they were meant to be the future of P&G but instead they are operating on a global platform with global brands and they don't know how to operate with these small brands."

Related Link: Nelson Peltz And Procter & Gamble: The Biggest Proxy Battle Ever
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Image Credit: By ParentingPatch (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

 

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