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Two major news stories broke today regarding Procter & Gamble Co. (PG), and I get the feeling they're correlated.
First, Procter & Gamble stock got a nice 3.75% pop after news broke that activist investor Bill Ackman is licking his chops:
Mr. Ackman's move became known via the Federal Trade Commission, which gave Mr. Ackman's hedge fund antitrust clearance to proceed with the investment. Moves by activists are usually made known by filings to the Securities and Exchange Commission. Buying enough stock to require a quick SEC filing-5%-would cost about $8.8 billion. [...] Mr. Ackman has made a career of buying big stakes in companies and then agitating, sometimes aggressively, for changes he believes will increase the companies' value.
Later in the day, Bloomberg announced that Procter & Gamble directors are unhappy with CEO Bob McDonald's performance:
Procter & Gamble Co. board members are dissatisfied with Chief Executive Officer Robert McDonald 's performance and discussing a possible leadership change, according to people familiar with the situation.
Impact on Investors
In my last article about Procter & Gamble, Analyzing Accusations Against Procter & Gamble, I examined three common accusations against the company:
- Poor strategies in developing markets
- Unnecessary focus on R&D/innovation
I concluded that the first two accusations had little to no basis, but on the third point, I was unable to come to a firm conclusion. While the consumer goods company has announced a $10B cost-cutting program, talk is cheap, and as investors, we need to see results.
In my last article, I quoted analyst Ali Dibadj, who isn't thrilled with Procter & Gamble's management:
The company has lost share, missed commitments to the street, missed commitments internally, and is in a much worse place than I think any of us would have anticipated. Can you hoist that blame just on one person? No, but there's always one person who's ultimately responsible.
That last line is a less-than-subtle jab at the CEO, who of course is ultimately responsible.
I see these developments as positive for Procter & Gamble. Why? Well, we already know Procter & Gamble is a household name with $26 billion brands and a great dividend program. The only real question was the management—and now, it seems, that will be addressed. Not only are Procter & Gamble directors unhappy, but given Ackman's history as an activist investor, it's safe to say management will be under a good amount of pressure in the near future.
Ackman Vs. McDonald: Does It Matter Who Wins?
No matter whether Bob McDonald stays on as CEO or not (and given current information, I am leaning towards not), there's going to be one winner for sure—the shareholders.
Look at it this way. If Bob McDonald is forced out, Procter & Gamble will then have a new CEO, who will (hopefully) lead the company to stronger earnings performance. Even if McDonald ends up staying, given Ackman's presence as an activist investor—and the Procter & Gamble directors' apparent displeasure—he'll have the proverbial fire lit under his rear end. If he doesn't produce results, it's back to scenario 1, where Procter & Gamble finds a new CEO.
While I viewed Procter & Gamble in a positive light prior to today's news, my confidence as a shareholder has been reaffirmed by the developments. I think Ackman's investment and the directors' discussion of management are both net positives for long-term and short-term Procter & Gamble investors alike. The company's stock has underperformed competitors like Kimberly-Clark Corporation (KMB), Clorox Corporation (CLX), and Colgate-Palmolive Co. (CL) recently. I think today's announcements could be the start of Procter & Gamble catching up to peers.
Disclosure: I am long PG.