Taking on Procter & Gamble, the largest company to face an activist investor in a proxy battle, may have been a step too far for Nelson Peltz’s Trian Fund Management, the $14 billion hedge fund firm with a $3.5 billion stake in the consumer products giant. After a close shareholder vote Tuesday morning, P&G said initial results indicated that Peltz had lost his bid to join the company’s board.
While the final tally isn’t in — and Peltz is not conceding — an activist loss would be the first big one in a year of solid wins. Indeed, the day before the P&G vote, Trian partner Ed Garden wrangled a board seat at General Electric, where Trian has a $2.5 billion stake.
Earlier this year, Paul Hilal’s Mantle Ridge convinced CSX Corp., the U.S. railroad, to give it five board seats and install a new chairman. Paul Singer’s Elliott Management ended an ugly battle by nabbing three board seats with metals manufacturer Arconic, the company created when aluminum giant Alcoa split into two separate businesses, just days ahead of a shareholder vote. And Mick McGuire’s Marcato Capital went all the way to a vote in its proxy contest to get three seats at casual dining chain Buffalo Wild Wings. (McGuire is now targeting Deckers Outdoor Corp.) On a smaller scale, Engaged Capital recently engineered a board shakeup at Hain Celestial Group, with six new directors, including Engaged founder Glenn Welling.
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A recent J.P. Morgan report found that in the year ending June 30, activists won at least one board seat 46 percent of the time, up from 41 percent the year before. Only 19 out of 54 contests — many of them small — went all the way to a vote.
To be sure, a bigger test of activists’ appeal comes with companies whose huge market capitalizations and widespread shareholder bases make them tougher targets. Procter & Gamble, for example, has a market cap of $233.6 billion. Following P&G, the next biggest ongoing battle is Bill Ackman’s Pershing Square Capital effort to gain three board seats at ADP, the payroll processor with a market cap of $50.7 billion. Shareholders will vote on competing director slates on November 7.
Trian’s battle with P&G has been the most costly and hard fought this year. Both sides spent tens of millions of dollars in advertising and presentations around the country to woo investors. Trian’s campaign was directed to retail investors as well as institutional ones — a tactic that worked for Singer with Arconic and is also being tried by Ackman. Ackman’s appeal to retail investors even includes a webcast where he is answering their questions directly. The webcast is slated for 7 p.m. Tuesday night on his www.ADPascending.com website.
Trian Partners is waiting for the final vote tally before throwing in the towel. “We await the certified election results by the independent inspector of election,” Trian said in a statement following the vote Tuesday. “Regardless of the final voting results, Trian believes management and the Board have been put on notice by shareholders — a continuation of the past decade’s underperformance is simply unacceptable.”
A loss would sting because Trian also won the support of proxy solicitors Institutional Shareholders Service and Glass-Lewis. Such endorsements are considered critical, but their support in Trian’s proxy battle with DuPont did not lead to a win either. Months after Peltz lost the proxy battle with DuPont in 2015, CEO Ellen Kullman left the company, which then agreed to merge with Dow Chemical — a company that was facing its own activist pressure from Dan Loeb’s Third Point.
Tuesday’s proxy vote is not the end of P&G’s tangles with Peltz, either.
“He’s not going anywhere,” says Kenneth Squire, founder and principal of 13D Monitor, which tracks activist stock holdings. “It’s a great time to be a P&G stockholder. Over the next year the company is going to create value for shareholders or he’ll be back again,” he said. “I said that about DuPont, and it did not even take them a year.”
Procter & Gamble shares fell 0.54 percent after the vote Tuesday and are up 8.97 percent this year.
Ackman also says he won’t go away if he loses his proxy battle, which also will only increase pressure on ADP to perform. Shares of ADP are up about 16 percent since Pershing Square started accumulating its stake in May.
Having an activist in the board room is no guarantee for shareholders either. In the case of both CSX and Arconic, the big gains were made after the activist stakes were announced, with less change after the actual win. In other cases, the stock has tumbled. Some two-thirds of shareholders voted for Mick McGuire’s board slate at Buffalo Wild Wings, and the CEO quickly announced her retirement. Yet the stock is now down about 33 percent since Marcato’s win was announced in early June.
