The Trian/P&G Proxy Contest

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton publication by Mr. Lipton. Additional posts by Martin Lipton on short-termism and corporate governance are available here. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

Trian’s P&G whitepaper is a unique support document for an activist proxy contest. Its 93 pages are replete with suggestions and criticisms that should be taken into account by companies in connection with their preparations to avoid an activist attack and for dealing with an activist. The whitepaper raises the not unusual issues of comparative peer TSR, declining market shares, executive compensation in relation to performance, board complacency and weak corporate governance, among others. The unique aspects are:

  • Trian does not seek to change the board or management, but only to add its senior partner, Nelson Peltz, to the board.
  • Trian is not seeking break-up of P&G.
  • Trian is not seeking to cut pensions, reduce CAPEX, reduce R&D, or reduce marketing expenses.
  • Trian is seeking to promote long-term investment and growth.

In other words, Trian’s program is the opposite of 3G’s zero based budget program that continues to threaten and influence consumer products companies. Instead, Trian is volunteering Mr. Peltz (who does have an impressive record of success with consumer products companies) to join the P&G board and act as a management consultant to recommend strategic and operational changes.

It will be interesting to see whether this approach will gain favor with the major investors.

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