Post Vote Update: Revisiting the P&G-Trian Contest

Colin Ruegsegger is a Senior Analyst at Glass, Lewis & Co. This post is based on a Glass Lewis publication by Mr. Ruegsegger. 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).

Frequently touted for its absolute scale, it seems fitting that the knock-down, drag-out fight between Trian and P&G is slated to continue into extra rounds. Indeed, P&G is the largest firm to ever face a proxy contest, and the cash reportedly invested by the two sides tops all prior campaigns.

As widely reported, management’s quick conclusion against Nelson Peltz’s candidacy at the annual meeting was almost immediately contested by Trian as too close to call. Preliminary results, filed with the SEC on October 16, 2017, appear to support Trian’s perspective, with votes in favor of Mr. Peltz trailing votes in support of Mr. Zedillo—the incumbent director subject to Trian’s solicitation—by just 0.63% of votes cast for the contested board seat. The current differential represents just 0.2% of the total outstanding shares at the Consumer Packaged Goods company. Neither candidate received the affirmative support of a voting majority.

The post-meeting tangle now shifts to a more granular vote certification process, with participants including Trian, P&G and P&G’s independent inspector of elections. The underlying effort—which will involve, among other things, an evaluation of whether proxies have been appropriately executed and whether the most recent proxy for each investor was counted—is expected to take roughly two months. In the interim, the remainder of P&G’s unaffiliated investors have few alternatives beyond simply waiting for the certification process to conclude.

It should be noted this razor’s-edge outcome is not unfamiliar territory for Trian. A similar campaign at E.I. Du Pont de Nemours in 2015 left Mr. Peltz narrowly short of election, with his candidacy grabbing 46% of votes cast at the meeting. This degree of support, combined with an expressed intention to acquire more Du Pont shares and remain engaged, arguably left Trian and Mr. Peltz in a position to continue pressing their agenda from outside the board room. It is noteworthy, then, that Du Pont CEO Ellen Kullman departed just five months after the contested meeting, with her replacement, Ed Breen, quickly pursuing a cost cutting campaign and, ultimately, a combination with The Dow Chemical Company.

Given the similarities between the Du Pont vote and the reported outcome at P&G, we consider it unlikely Trian will be compelled to walk back its position here. To the contrary, with a cogent set of arguments and a vote outcome that will certainly land at the very margins of P&G’s voting base, we expect Trian will leverage a patient approach and strong investor support to continue advocating— publicly or privately—for changes to the status quo.

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