P&G vs. Nelson Peltz: The Most-Expensive Shareholder War Ever

By David BenoitFeaturesDow Jones Newswires

Small shareholders are set to decide the biggest proxy fight in history.

Individual investors, who own an outsize proportion of Procter & Gamble Co.'s 2.55 billion shares, are expected to play a pivotal role in a vote Tuesday on Nelson Peltz's campaign to win a board seat at the consumer giant.

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Roughly 40% of P&G's shares are held by individuals, while institutions like mutual funds and index funds own the rest. Only 10 companies in the S&P 500 have more retail representation, and the average is just 12%, according to S&P Global Market Intelligence.

Meanwhile, the top 10 P&G shareholders own 24% of the company compared with an S&P 500 average of 46%, according to FactSet.

That means that unlike in other activists campaigns, which can be determined by a few powerful shareholders, the battlefield here is broad and the outcome less certain.

It has helped make the fight, already a record-setter given P&G's market capitalization of $235 billion, the most expensive in history with an estimated cost of $60 million as the company and Mr. Peltz's Trian Fund Management LP splash out on phone banks, advertisements and old-fashioned mailings.

P&G, the maker of Tide detergents, Pampers diapers and Gillette razors, has said it expects to spend $35 million, while Trian is budgeting $25 million. The combined estimate is nearly double the prior record from Arconic Inc.'s bruising battle with Elliott Management Corp. of $32.5 million, according to FactSet. The median spent by companies on proxy fights last year was just $1 million.

P&G and Trian have enlisted armies of so-called proxy solicitors who are tasked with winning votes, much like in a political campaign. They have spent the past month seeking votes from the more-than 2.5 million P&G investors, particularly employees and retirees in the company's hometown of Cincinnati.

While Trian and P&G mostly agree on what needs to be done to jump-start the company's stock price, they are at odds on whether Mr. Peltz would be a good addition to the boardroom, and that has fueled an aggressive competition for votes. Adding to the challenge, retail shareholders tend not to turn out for corporate elections, though precise figures are hard to come by.

"It's a true contest here, significantly time-intensive and expensive," said Bruce Goldfarb, head of proxy solicitor Okapi Partners LLC, which isn't involved in the P&G fight. "In some instances, campaigns are just potentially so close that you can't be penny wise."

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.

Top officials on both sides have spent considerable time trying to get out the retail vote and swing it in their favor. Mr. Peltz headed to Cincinnati the week after Labor Day to meet with local press. Trian insists it doesn't want a breakup that many at the company oppose and enlisted longtime P&G finance chief Clayton Daley to help make its case.

P&G has trotted out letters from the Cincinnati mayor, local business organizations and former Chief Executive A.G. Lafley to make its case that the company is already on the right path.

Each side has released near-daily communications, plastered Facebook and Google with links to campaign websites and produced flashy videos, amounting to more than five Securities and Exchange filings a day since Labor Day.

P&G is paying $2.5 million to proxy solicitors D.F. King & Co. and MacKenzie Partners Inc., who are employing about 450 workers combined for the effort, according to filings. Trian is using Innisfree M&A Inc., which is getting $2 million and using 200 employees. The solicitors also get reimbursed for expenses.

To reach investors who own shares through stockbrokers, companies and activists typically go through Broadridge Financial Solutions Inc., a little-known financial services company that prints and sends out the communications and tallies incoming votes.

In any proxy fight, a mailing costs $1.25 for each shareholder, plus postage, according to prices set by stock-exchange rules. Broadridge will take more for flashier packaging, opening on weekends and for rushing mailings.

Proxy solicitors on both sides have set up phone banks that can charge $4 to $6 per call.

Joe Mills, a longtime solicitor and co-founder of Saratoga Proxy Partners, who isn't involved but personally holds about 120 shares of P&G, got four mailings from the company -- and none that he saw from Trian. He cast for management, believing the board is already strong enough.

Mr. Mills doesn't think the outcome will have much of an impact on P&G's stock. "What's unique about this is the amount and kind of resources being expended over something that is not material to the investment," he said.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

October 06, 2017 18:15 ET (22:15 GMT)