Delving Deeper Into The Ackman - Procter & Gamble Saga

| About: The Procter (PG)

As William Ackman bought stock in Procter & Gamble (NYSE:PG), speculation is ripe about the kind of changes he wants at the management level. The CEO and the Board of Directors have been Mr. Ackman's favorite targets in each of his previous activist interventions. So it is not unlikely for the analysts and observers to speculate on the possible exit of Bob McDonald, Chairman of the Board, President and Chief Executive Officer of P&G. The P&G board moved swiftly on July 18th, to quell down this speculation and issued the following statement:

In response to recent erroneous media reports, the independent directors of the Board of The Procter & Gamble Company make the following statement:

The Board is overseeing a plan to return P&G results to levels that produce the best long term value for shareholders; unanimously supports the plan and Chief Executive Officer, Bob McDonald, as he leads its implementation; and is monitoring its effectiveness.

This eerily resembles Ackman's confrontation with Canadian Pacific's (NYSE:CP) Board of Directors. As soon as Mr. Ackman disclosed his stake in Canadian Pacific people started speculating about his intentions. The board responded, in much the same way, extending full support to the CEO and his team. Mr. Ackman's company, Pershing Square Capital, then took the battle to the next level and nominated its directors for election. In a coup that eventually rattled boardrooms across Canada, Pershing Square replaced Mr. Fred Green, the then CEO of Canadian Pacific with Mr. Hunter Harrison, a retired former President and CEO of Canadian National Railway Corporation, CP's closest competitor.

It seems very likely that there is going to be heated debate about Bob McDonald's future at the helm of P&G. Speaking at the Delivering Alpha conference organized by CNBC, Mr. Ackman said he looks forward to meeting Mr. McDonald and gave some insights into his thought process. When asked specifically if he believes that he can influence a company as large as P&G with a 1% stake, 'yes' was his short and confident reply. He also revealed that his company has invested $1.8 billion in P&G's equity and owns a few options on top of that. The P&G investment is around 17% of his $10.5 billion fund, which is a rather large amount to bet on a single idea. When asked if he was willing to risk 17% on a single idea Mr. Ackman emphasized that in a company of this quality and at this price, it would be hard to lose money.

Pershing Square's stake came to light on July 11th. The 6-month weighted average stock price of P&G before 11th July is 63.4 and it is likely that Mr. Ackman's price is going to be somewhere close to this. On Friday the stock was trading around 64.75, 1.35% higher than the assumed Ackman price. In another report I pointed out how some of Ackman's earlier investments have returned 30% in 6 months. For ordinary investors it might be difficult, if not impossible, to sit down and analyze the annual reports and the performance of a company and make an investment decision. So, once in a while, it might just make perfect sense to get in the train driven by an expert and ride along.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.