P&G faces uphill fight against Peltz after proxy firms back him

Bloomberg

Procter & Gamble Co. is facing longer odds in its standoff with Nelson Peltz, the billionaire investor who is vying for a board seat in one of the most contentious proxy fights in years.
Peltz won the approval of prominent shareholder-advisory firm Institutional Shareholder Services Inc , following a similar endorsement from Glass Lewis & Co. the previous week. The firms’ support could give Peltz a crucial edge in persuading P&G’s biggest investors to vote him onto the board during its annual meeting on October 10.
It now falls to P&G to convince shareholders that its board is doing just fine without Peltz’s meddling. The consumer-products giant has scheduled a webcast on Tuesday, when Chief Executive Officer David Taylor, Chief Financial Officer Jon Moeller and board member Meg Whitman will field questions from investors.
“Change is not warranted when a highly engaged board is overseeing a plan that is working,” P&G said in a statement on Friday. “We firmly believe adding Nelson Peltz to the P&G board would derail our progress.” Peltz, a founding partner of Trian Fund Management, launched his proxy fight in July, saying that P&G had a “ suffocating bureaucracy” and was performing worse than peers. He has argued that his presence on the board could be the shake-up that the company needs.
P&G is the largest company by market value to face such a fight. But Peltz isn’t calling for a breakup of the business or suggesting that Taylor be ousted. And unlike with many previous proxy battles, he’s just seeking one board seat.

Bitter Fight
Still, the contest has grown increasingly bitter. Taylor, 59, has argued that Peltz doesn’t understand P&G’s business and hasn’t taken the steps needed to learn more about the company.
In throwing its support behind Peltz, ISS argued that the billionaire could help the company “look around the next corner and avoid future missteps,” according to a 24-page research note.
“P&G’s board is accountable for several missteps over the past several years,” the firm said in a report. Those include “its handling of previous CEO successions, its oversight of an M&A strategy that resulted in dozens of acquired brands subsequently being divested, and its failure to prevent the company’s organisational structure from becoming overly complex in the first place.”
The board “could benefit from additional diversity of thought and experience,” ISS said. The advisory firm also noted that due to the size of Peltz’s holdings—his 1.5 percent stake accounts for about a quarter of Trian’s assets under management—it’s unlikely that he would be “needlessly disruptive if his actions could negatively impact P&G’s share price.”

Glass Lewis
When Glass Lewis endorsed Peltz’s bid last week, it said the investor was a “credible, suitably experienced candidate.” The firm sees the decision to elect him as “low risk” because he would be forced to work constructively with the rest of board.
While it’s not guaranteed that shareholders will be swayed by ISS or Glass Lewis, many institutional investors rely on the firms’ advice when they vote in proxy fights.
Peltz launched his campaign for a board seat after disclosing a roughly $3.5 billion position in the Cincinnati-based company.
P&G has said that Peltz’s views on the company are “flawed” and “outdated” and that he would bring little value as a director.