Procter & Gamble Says Peltz Has Lost Bid for Board Seat; He Disagrees -- 4th Update

By Sharon Terlep and David Benoit Features Dow Jones Newswires

Activist investor Nelson Peltz narrowly lost his bid to win a board seat at Procter & Gamble Co., a campaign that divided the company's investors and will put added pressure on the global giant to prove its big brands can still boost sales.

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After waging the largest and most expensive proxy fight in U.S. history, P&G said Tuesday that a preliminary tally showed all 11 current directors had been re-elected, without disclosing the vote 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 a crowd of shareholders, who had gathered at P&G's Cincinnati headquarters.

But Mr. Peltz wasn't ready to admit defeat, saying that he disagreed with the company's counting of the ballots. His Trian Fund Management wants to wait for the tally to be certified and plans to challenge the vote, the firm said.

With as many as 2.5 billion shares to count and paper ballots to check, it could take days or weeks to certify the final tally.

The close vote adds fuel to the debate about the impact of activism. While Mr. Peltz convinced some big index funds to support him, many P&G employees and retirees rejected the activist, showing that workers still fear Wall Street's prescriptions. Those who warn activists are short-sighted have often sought to defend "stakeholders" of a company, including employees and communities, and the vote shows popular opinion agrees.

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

Mr. Taylor said the fight increased urgency within P&G but 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. "I told Nelson Peltz I would listen to him."

P&G shares fell immediately after the news and were down 1.6% to $90.67 in Tuesday afternoon trading.

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 said he would disrupt a turnaround that is under way.

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 turnout reflected the large number of P&G shares held by retirees and other individuals, and the high number who live in the city. Retail investors own roughly 40% of the company, compared with an average of just 12% at the S&P 500, according to S&P Global Market Intelligence.

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

Vanguard, the biggest single P&G holder with a 7% stake, voted for management, according to people familiar with the matter. Trian won the support of BlackRock and State Street, which hold around 10% combined, they added. At BlackRock, some actively-managed funds that controlled a small portion, about two million shares, voted for management, one person said.

Management won a big chunk of the employee-owned stock plans, which controlled about 7.5% of the total,the people said. Unlike most shareholders, the employee plan votes shares even for individuals who don't cast their ballots. Any share that wasn't sent in was voted in proportion to those that did.

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

Juanita Zahner, a P&G retiree from St. Louis, 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 and a shareholder for 40 years.

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.

Several retirees who spoke at the meeting, including one who voted for P&G, took the company to task for poor share returns and resistance to change.

Trian is among the few activists who have proven they can challenge the biggest blue-chip companies. Historically, the fund was able to avoid proxy fights and talk its way into boardrooms with settlements, more akin to what happened with General Electric Co. on Monday. However, if the initial P&G tally holds up, it would make two straight mega-losses for Mr. Peltz.

Two years ago, DuPont Co. fended off Mr. Peltz by likening his style to "shadow management." The company won the votes of all three big index funds who had appeared to worry about Mr. Peltz's style. Since then, Trian has aggressively courted that demographic, trotting out executive allies to tell their tales at conferences and investor meetings.

Although Trian narrowly lost the DuPont vote, subsequent events led some to argue it was right all along. DuPont management missed the 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 will now be forced to live up to all the promises of progress and change it made in trying to convince investors.

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," the activist said.

Mr. Taylor responded, "No, no, no, that's not true."

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

(END) Dow Jones Newswires

October 10, 2017 15:18 ET (19:18 GMT)