Three easy pieces: Nelson Peltz explains how to fix Procter & Gamble

CINCINNATI -- Activist investor Nelson Peltz unveiled a 93-page restructuring plan for Procter & Gamble Co. Wednesday, calling for the consumer products giant to be re-organized as a holding company with three “largely autonomous” operating units that puts “regional leaders” in “clear control” of each unit.

“Each of these P&G business units will be able to operate like nimbler, smaller companies to maximize accountability, bring about faster decision-making and better responsiveness to local trends, all while preserving appropriate and logical synergies between the units,” Peltz wrote in a “White Paper” published after the markets closed Wednesday.

It’s the first detailed explanation that Peltz has offered on how he would bring back sales and market-share growth to P&G, which is fighting a proxy battle to keep Peltz off its board. Peltz argued that P&G has “failed to create a meaningful new brand in nearly 20 years” and has a poor track record on mergers and acquisitions.

Peltz also criticized P&G’s board for overpaying executives and considering internal candidates only as CEO.

P&G said it studied an organizational structure similar to what Peltz is now proposing, but rejected the idea in favor of a plan to sell 100 brands and reduce from 16 to 10 the categories in which the company competes.

"We studied numerous organizational design structures, including one similar to what Mr. Peltz proposed in his white paper," P&G said in a note to shareholders. "We concluded this approach would result in higher costs, lower efficiency, reduced profits and an added layer of management complexity. His playbook appears to be code for another restructuring and a precursor to a breakup of the company - his 'cookie cutter' plan."

While Peltz has previously pledged not to advocate a breakup of P&G, his proposal for re-organizing P&G could clearly have a dramatic impact on Cincinnati. He wants to reshape the company into three segments that “operate like standalone public companies.”

The three business units would be:

  • Beauty, grooming and health care, with $26 billion in sales and $6.4 billion in operating profits.
  • Fabric & home care, with $21 billion in revenue and $4.2 billion in operating profit.
  • Baby, feminine and family care, with $18 billion in sales and $3.8 billion in profit.

Each business unit would report to P&G, but its leaders would have the ability to opt out of services like media buying and research. The business units would be overseen by a lean holding company whose main function would be to control “public company functions and costs.”

Peltz argues these changes would have left P&G in a better position to respond to market-share losses in the U.S. razors category and diapers in China. But his analysis covers a five-year period ending in 2016. P&G has claimed that both categories improved in 2017.

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