What Does Activist's Stake Mean for P&G?

Activist investor Nelson Peltz is reported to have amassed a stake of more than $3 billion in

The timing of this investment is interesting. Management just closed the book on the significant brand rationalization conducted over the past two years (shedding more than 100 brands from its mix, leaving it with just 65 brands), which we think positions it to benefit from more focused brand spend (and hence an ability to more effectively tap into and respond to evolving consumer trends). From our vantage point, these investments should yield improvements across its product mix, driving accelerating sales and volume growth, and subsequently aiding the brand intangible asset source of its wide moat.

And the firm isn’t looking merely to drive unsustainable sales gains, but is also working to root out inefficiencies, targeting to extract another $10 billion of costs by reducing overhead, lowering material costs, and increasing manufacturing and marketing productivity. Given all of the actions the firm is presently undertaking, we don’t anticipate Peltz will call for additional steps to transform the business at this time (cutting further costs and/or adjusting its business mix). However, if the sustainability of its top-line and margin gains falter, we think P&G could ultimately be prompted to drive even more efficiencies, as well as dispose of additional brands or businesses.

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