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Procter & Gamble (PG) Says Peltz's Track Record Shows He Has 'No Magic'

September 19, 2017 12:30 PM EDT

As the proxy fight between Nelson Peltz and Procter & Gamble (NYSE: PG) enters the final weeks, the rhetoric between the two sides is being ratcheted higher. Mr. Peltz has been making the rounds on Wall Street this week while a new 106-slide presentation from Procter & Gamble takes direct aim at the hedge fund manager's track record and reiterates the fact that he is offering "no new ideas".

In the presentation issued Tuesday, P&G highlighted that past investment from Peltz's Trian in the consumer sector simply “pulls forward” share price performance, which is followed by a reversal. The company reviewed all exited Trian investments greater than $25 million that was held for more than 2 years. In aggregate, Trian purchased stocks that underperformed the market by 5% in the year up to its investment, saw modest stock price outperformance during Trian’s investment period, and saw modest underperformance after exiting.

The presentation highlights that in the two years before Peltz was added to Heinz’s Board, over 100% of organic sales growth was from increasing volume (3.1% average). Meanwhile, in the five years following his addition to the Board, volume grew at an average of 0.5% and nearly 90% of organic sales growth was driven by pricing. Trian's original plan to 'enhance value' at Heinz included increasing gross margins 200bps. Meanwhile, margins have remained flat throughout Peltz’s tenure on the Board. The fund was also calling for a divestiture of Infant Nutrition and ABC, although the Heinz still owns both today.

The company also highlighted that in the two years before Peltz was added to Mondelez’s (NYSE: MDLZ) Board, volume grew at an average of 2.3%. In the 3.5 years following his addition to the Board, volume declined at an average of 1.9%, and organic sales growth has been pricing-driven. They highlighted that Mondelez volume growth has been negative every year since Peltz was appointed to the Board.

On Wendy’s (NYSE: WEN), Trian recommended ideas to increase EBITDA 68% to $463 million. What happened was that margins remained flat for many years post campaign until the adoption of the refranchising model.

While Trian often cites P&G’s 'recent underperformance' in its push for a board seat, P&G said that since November 2015 it has outperformed peers. In the period since November 1, 2015, P&G created $59 billion of value for its shareholders, while companies where Peltz sits on the Board created a cumulative value of $4 billion.

In addition, P&G highlighted that while Trian’s publicly stated target investment holding period is 3-5 years, when analyzing all past investments, the median holding period for investments owned for at least one year is approximately 2.5 years. This compares for a median ownership period for the Top 25 shareholders of P&G of 20+ years, excluding index funds.

Overall, P&G reiterated that it has been doing the heavy lifting for a steady and long-term recovery and Peltz has "no magic" for a quick fix and should not be added to the board at the upcoming Oct. 10th annual meeting.

The full presentation can be found here: https://voteblue.pg.com/static/pdf/PG-Executing-a-Strategy-that-is-Working.pdf



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Nelson Peltz, Trian Fund