Procter & Gamble Board Vote Is Too Close to Call -3rd Update

By Sharon Terlep and David Benoit Features Dow Jones Newswires

The most expensive proxy fight in U.S. history left Procter & Gamble Co.'s shareholders evenly split over whether to put activist investor Nelson Peltz on the board.

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After the two sides spent at least $60 million and crisscrossed the country to win shareholder support, the vote was too close to call as the meeting got under way on Tuesday. It could take days or weeks to certify the final tally, people familiar with the matter said.

More than 400 people showed up at P&G's Cincinnati headquarters for the meeting, the crowd filling an auditorium and spilling into two overflow rooms. The event began with the crowd joining in the singing of the national anthem.

Mr. Peltz, whose Trian Management Fund is one of P&G's top investors, sought a board seat over the company's objections. He has argued the company needs to streamline its operations and bring in outside talent. P&G has said he would disrupt a turnaround that is under way.

While most votes are cast online, an unusually large number of votes being cast the by paper ballot could slow the counting process, a P&G spokesman said Tuesday. "If it gets really close, there's a Florida situation," he told reporters before the meeting, referring to the 2000 U.S. presidential election.

Mr. Peltz spoke briefly at the meeting's start and said the close vote may mean the outcome won't be known Tuesday. "Win or lose, the shareholders have spoken," he said. "Either way today's vote is a vote for bold change."

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David Taylor, P&G's CEO, gave a speech in which he laid out the company's progress, from new products to share gains in some markets.

"We're willing to change anything except our core purpose, values and principles," he said.

The high turnout reflects the unusually high number of P&G shares held by individuals, and particularly the high number who live in the city. Retail investors own roughly 40% of the company's roughly 2.5 billion shares, compared with an average of just 12% at the S&P 500, according to S&P Global Market Intelligence.

Two top proxy advisers, Institutional Shareholder Services and Glass, Lewis & Co., had recommended investors vote for Mr. Peltz, but not all mutual funds and index funds follow their advice. P&G's three biggest investors -- Vanguard, BlackRock and State Street -- voted against Mr. Peltz in his unsuccessful proxy fight with DuPont Co. in 2015.

The P&G vote came a day after another corporate giant, General Electric Co., agreed to give Mr. Peltz's co-founder at Trian a seat on its board.

P&G shares over the last decade have lagged behind competitors and the S&P 500. Its stock price is up more than 20% since Mr. Taylor became CEO, an increase in line with the S&P 500. Trian has argued Mr. Peltz's involvement in the company has helped buoy the stock.

Each side has sent its own ballot with a slate of 11 directors -- P&G's blue, Trian's white. Trian's replaces Ernesto Zedillo, the former president of Mexico, with Mr. Peltz, though the activist has pledged to renominate him if Mr. Peltz wins. Holders can only vote on one ballot, though they can vote for fewer than 11 nominees. The 11 that get the most votes of the 12 nominees will be seated.

P&G rejected Mr. Peltz's attempt to get a board seat, saying his ideas are either ill-informed or retreads of work that is already under way. Its executives warned that adding the outsider to the board could disrupt the company's progress.

Trian said the company should organize itself into just three business units, down from 10, by combining businesses, such as beauty, grooming and health care. The units, Trian said, would operate autonomously and have total control over sales, marketing, manufacturing and other major functions.

On Tuesday, Mr. Peltz said the vote was close enough that shareholders had sent a message the board. "The board owes it to the shareholders to really study the issues, the issues of structure and the issues of culture," he said.

Juanita Zahner, a P&G retiree from St. Louis who worked in the company's plant there, came to the meeting with her husband and said she voted against Mr. Peltz.

"Procter's been good to us, and I don't like what these guys have done to other companies," said Ms. Zahner, 74 years old, a shareholder for 40 years. "Ever since we retired, we've been wanting to go to a shareholders' meeting. This seemed like the one to be at."

Write to Sharon Terlep at sharon.terlep@wsj.com and David Benoit at david.benoit@wsj.com

CINCINNATI -- Activist investor Nelson Peltz narrowly lost his bid to win a board seat at Procter & Gamble Co., but his campaign isn't going away, promising to keep pressure on P&G to change.

After waging the largest and most expensive proxy fight in U.S. history, P&G said Tuesday a preliminary vote tally showed all 11 current directors had been re-elected, without disclosing the count.

"We will continue to respectfully engage with Nelson Peltz, whose input we value," P&G chief executive David Taylor said after declaring victory to cheers and a standing ovation from shareholders at the company's headquarters. The two sides spent at least $60 million and crisscrossed the country to win shareholder support.

But Mr. Peltz wasn't admitting defeat and said he disagreed with P&G's counting of the ballots. His Trian Fund Management said it would wait for the tally to be certified -- which with as many as 2.5 billion shares to count and paper ballots to check, could take days or weeks.

Far from settling the challenge, the close vote promises to keep P&G on the spot to show its big brands can grow. Even if the company can keep Mr. Peltz out of the boardroom, P&G's divided shareholder base will be attuned to any corporate slip-up or missed promise, while Mr. Taylor tries to address the bigger issues Mr. Peltz threw into focus -- costs, hipper brands and nimbler management.

Mr. Peltz and Mr. Taylor shook hands after Tuesday's meeting. Mr. Peltz congratulated the CEO. "We'll talk," Mr. Taylor said.

"We'll talk but we don't listen," Mr. Peltz replied. Mr. Taylor responded, "No, no, no, that's not true."

"At best for them it's a Pyrrhic victory," Mr. Peltz said after the meeting. "If they'd gotten me on the board there would be no short-term pressure."

P&G shares fell immediately after the vote news and closed Tuesday down 50 cents to $91.62. The stock is up nearly 9% on the year.

Trian is among the few activists to prove it can present a serious challenge to the biggest blue-chip companies. Historically, the fund has avoided proxy fights and talked its way into boardrooms with settlements, more akin to General Electric Co.'s move Monday to give Trian a seat on its board.

However, if the initial P&G tally holds up, it would mark a second defeat in a major proxy campaign for Trian, which lost a similar vote at DuPont Co. in 2015.

DuPont had fended off Mr. Peltz by likening his style to "shadow management" and won the votes of all three big index funds that had appeared uneasy with Mr. Peltz's style. Since then, Trian has aggressively courted that investor demographic, trotting out executive allies to detail their largely positive interactions with the fund at investor meetings.

Trian narrowly lost the DuPont vote, but subsequent events led some to argue the fund was right all along. DuPont management missed numbers it had pledged to hit, and the company has since merged with Dow Chemical Co. in a plan Trian helped design.

Mr. Peltz pointed to DuPont on Tuesday, saying P&G management now will have to live up to the promises of progress and change it made in trying to persuade investors to vote against Trian.

For his part, Mr. Taylor said the proxy battle increased urgency within P&G even as he insisted the maker of Tide and Pampers was making progress in its turnaround efforts after a decade of market-share losses and stagnating profits. "It's a proxy contest about ideas," Mr. Taylor said.

Mr. Peltz, whose Trian has invested about $3.5 billion in P&G, argued the company needs to streamline operations and bring in outside talent. P&G countered that Mr. Peltz's arrival would disrupt a turnaround that is under way.

A large P&G shareholder, the California State Teachers' Retirement System, said the vote sends a message to P&G's board and management. "Nearly 50 percent of shareholders -- including large traditional passive asset managers -- made it clear that they are looking for the company to change direction," the fund said in a statement.

Two top proxy advisers had recommended that investors vote for Mr. Peltz, while P&G's three biggest investors -- Vanguard Group, State Street Global Advisors and BlackRock Inc. -- were divided.

Vanguard, the biggest single P&G shareholder with a 7% stake, voted for P&G management, according to people familiar with the matter.

BlackRock and State Street, which hold around 10% combined, voted with Trian, these people added. Some actively-managed funds at BlackRock that control a small portion of shares voted with P&G management, one person said.

Many P&G employees and retirees rejected the activist's challenge -- underscoring how companies' rank-and-file workers generally still distrust Wall Street prescriptions. Those who warn against activist investors and their short-sighted goals often defend company "stakeholders," including employees and other communities -- and the P&G vote indicates its employee stakeholders agreed.

P&G management won a big chunk of employee-owned stock plans, which controlled about 7.5% of the total vote, the people familiar with the vote said. Unlike most shareholders, an employee plan votes its shares even for individuals who don't cast their ballots, meaning that shares that weren't sent in were voted in proportion to the votes received.

"Employees were a solid front," Mr. Peltz said.

More than 400 people showed up for the shareholder meeting at P&G's Cincinnati headquarters, filling an auditorium and spilling into two overflow rooms. The turnout reflected the large number of P&G shares held by retirees and other individuals, many of them living in Cincinnati. Retail investors own roughly 40% of the company, compared with an average of 12% at the S&P 500, according to S&P Global Market Intelligence.

P&G shares over the past decade have lagged behind competitors' and the S&P 500. Its stock price is up more than 20% since Mr. Taylor became CEO in 2015, an increase in line with the S&P 500. Trian has argued Mr. Peltz's involvement in the company has helped buoy the stock.

Juanita Zahner, a 74-year-old P&G retiree from St. Louis and a shareholder for 40 years, said she voted against Mr. Peltz. "Procter's been good to us, and I don't like what these guys have done to other companies," she said.

Yet some retirees who spoke at the meeting took the company to task for poor shareholder returns and resistance to change. One shareholder who stepped up to the mic said, "What assurance can you give me, the shareholder, that the officers and directors that drove the company bus into the ditch are the ones that would get us out?"

Write to Sharon Terlep at sharon.terlep@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

October 10, 2017 21:12 ET (01:12 GMT)