The press is abuzz about Mr. William Ackman buying stock in Procter and Gamble (PG). Speculation is ripe about the kind of changes Mr. Ackman will try to bring about in the management team, possibly showing CEO Robert McDonald the door.
As a minority shareholder in P&G what should you do? Should you hold on to your shares, buy more or initiate a new position? Let us have a look at what has happened to similar high profile investments that Mr. Ackman made in other companies and the returns shareholder have enjoyed. The table below tells the story:
Date of first 13D Filing
Shares disclosed in filings (%)
SP as of next day
return to- date
Canadian Pacific (CP)
BEAM Inc (BEAM) (formerly Fortune Brands)
Mr. Ackman's strategy is to buy huge stakes in public companies and bring about strategic changes that he feels will result in increased shareholder profits.
Mr. Ackman acquired a 12.2% stake in Canadian Pacific Railway in October 2011. As disclosed in the proxy statement the board later acknowledged that they had met the management of Pershing Square a couple of times and "an invitation was extended to Mr. William A. Ackman… to join the Board". The board also extended unanimous support to CEO Fred Green. In January 2012, Mr. Ackman wrote to the Chairman of the Board reiterating his demands for two Board seats and for Mr. Harrison to be installed as President and CEO of the company.
He openly declared that unless these demands were met, Canadian Pacific risked turning a "border skirmish" with Pershing Square into a "nuclear winter" and initiate a proxy contest. The Board rejected these demands and the rest is history. Pershing Square fielded its candidates at the Board meeting and installed Mr. Hunter Harrison, retired former President and CEO of Canadian National Railway Corporation, as the CEO of Canadian Pacific. The stock returned 37% in the six months while all this drama ensued and is up 34% to date.
Ackman was also suspected to have orchestrated the split up of the three business segments of Fortune Brands. The listed entity, now called BEAM Inc, operates only in the production and sale of distilled spirits business. The stock returned 24% in the six months after Ackman got involved.
Ackman brought in Apple Inc's (AAPL) Ronald Johnson to become the CEO of JCPenney and try and create the magic he created for the Apple store. The stock was up 35% since Ackman's entry but the verdict is still out on whether Mr. Johnson can turn around the retailer. Sales were down 18% in Q1-2012 and analysts are questioning if his non sales driven strategy is working. Ackman made a presentation at the Ira Sohn conference this May and made an in-depth presentation about the company's prospects.
The only company where Mr. Ackman was unsuccessful in bringing about change was Target Inc. The company contested Ackman's challenge right from the beginning taking major shareholders into confidence. Ackman not only lost the proxy fight that followed but an internal fund that was set up to invest only in Target lost 85% of its $2 billion investment.
With P&G, Mr. Ackman will have to contend with being just one of the major shareholders. Pershing Square joins the ranks of companies like Vanguard, State Street Corporation (STT) and Berkshire Hathaway (BRK.A) (BRK.B) who have a much larger stake in P&G. Warren Buffett first bought P&G shares in 1989 and knows a thing or two about the company. He is a patient value oriented investor and his reaction to shareholder activism remains to be seen. All the major shareholders have a credible voice in the market that can be used to influence other shareholders should Mr. Ackman attempt a proxy war. So Mr. Ackman's ability to bring about major changes seems limited in this case.
Gone unnoticed among all this buzz is another small piece of information about how Pershing's interest in P&G came to light.
Any person or group of persons would be required to file a schedule 13D with the SEC when they acquire more than 5% of a company's shares with voting rights. And this is how large shareholder purchases come to light. However, this is not the case with Mr. Ackman's stake in P&G.
This story came to light when the Federal Trade Commission listed Pershing Square International Ltd and Pershing Square LP along with P&G in its press release on 11th July. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, commonly known as the HSR Act requires parties of certain large mergers and acquisitions to notify the FTC and the Department of Justice before consummating the acquisition. A waiting period of 30 days begins after the acquirer has filed the required documents with both departments. The acquirer can then request an early termination of the waiting period which can be granted if the antitrust agencies complete the review and determine that no action needs to be taken. The FTC then has to release the names of the parties that have been granted early termination as mandated by the HSR Act. And this is how Ackman's interest in P&G became public knowledge.
As per the HSR Act, if the acquirer does not request early termination then the FTC need not disclose the filing publicly. The FTC in this case, however, informs the company that it is being circled around by a large investor. Only if Pershing Capital had waited two more weeks the waiting period would have expired and its stake would not have been public knowledge unless it crossed the 5% threshold. The fact that Pershing Capital filed for early termination implies that it has no problem in its stake being disclosed to the public. And this typically happens when a fund has bought all it wants to buy.
All in all, shareholders have benefited by following Mr. Ackman's investments on a six month time frame. Whether Mr. Ackman is able to pull off another success story with his small stake or he's biting off more than what he can chew is something that time will tell.