How Procter & Gamble Co. is borrowing political campaign tactics to fight Nelson Peltz

Slick ads, endorsements influence shareholders

CINCINNATI -- Campaign commercials, key endorsements and a solid ground game for getting out the vote: They’re all factors in political contests -- but proxy fights?

That’s how things are shaping up in Procter & Gamble Co.’s battle over a board seat for hedge fund activist Nelson Peltz.

"I don’t have bad things to say about Nelson. I just don’t think he’s right for our board,” CEO David Taylor said in an Aug. 3 webcast, urging P&G’s employee shareholders to vote their blue proxy cards in favor of the company.

Details of the webcast were filed with the U.S. Securities and Exchange Commission Wednesday as part of a corporate election process that began July 17, when Trian Fund Management LP formally asked P&G shareholders to vote Peltz onto the company’s board.

By the time the election ends at P&G’s annual meeting in October, it will likely be the most expensive proxy contest in U.S. history, said Josh Black, editor in chief for Activist Insight, a monthly magazine for activist investors.

P&G told shareholders it will spend up to $35 million to defend its position. Trian said it will spend up to $25 million.

Much of that money will be spent on mailing the proxy statements – include board ballots – to the roughly 2.9 million owners of P&G stock.

“This is a campaign for votes,” P&G spokesman Damon Jones said. “We strongly believe what’s in the best interest of shareholders, employees and the broader Cincinnati community is to support P&G’s board and management. So, we’re going to be bold about making that position known.”

The $60 million price tag isn't the only way the contest is likely to resemble a presidential race. Proxy solicitation firms will put about 600 people to work, contacting individual shareholders, making sure those who support a particular side don’t throw away their proxies.

Both sides are likely to court endorsements from proxy-advisory firms like ISS and Glass Lewis. Pension funds, insurance companies, banks and mutual funds, often vote their shares the way proxy advisors recommend. Index funds, which rely on computer models to buy and sell stocks, are even more influenced by proxy advisors. But retail investors, or individuals, tend to be influenced by online ads, direct mail and employee webcasts.

Black said P&G’s proxy fight will be interesting to watch because retail investors could represent more than a third of the vote, while index funds could amount to less than 20 percent. That leaves a lot of room for campaign tactics like attack ads and direct personal pleas.

“A lot depends on the make up of the shareholder base,” Black said. “If you only need to get a few large institutional shareholders, then you probably don’t need to get too glitzy with it. If you’ve got large numbers of retail shareholders, which P&G does, you want to urge them to vote and make a more emotional connection with them.”

Taylor’s webcast was filed with the SEC because the company distributed it to all of its 95,000 employees Thursday. Taylor explains how a proxy contest works and defends P&G’s strategy for restoring profit and revenue growth by reducing costs and reinvesting the savings in 10 core product categories.

 

Taylor said Peltz is too focused on short-term results, has offered no new ideas and creates a risk of distracting P&G managers from a complex growth strategy that took months to develop and is just now starting to work. He also took aim at Clayton Daley, a former P&G Chief Financial Officer who joined the Trian Group as a consultant and investor.

"One of his key sources of data is somebody that left the company nine years ago," Taylor said. "That's not current information and I don't think it's representative of what you all are doing and what we are doing today."

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