Replacing P&G Boss May Be Bill Ackman's Best Hope

Agenda-Setting Financial Insight.
July 13 2012 4:20 PM

Replacing P&G Boss May Be Bill Ackman's Best Hope

104558727
New leadership could be one thing to help P&G, the$178 billion Pampers-to-Crest giant, get back on track.

Photo by DANIEL MIHAILESCU/AFP/Getty Images

Procter & Gamble is a hulking target for an uppity investor like Bill Ackman. Typical activist tactics like a breakup won’t work at the $178 billion Pampers-to-Crest giant. New leadership could be one thing to help get P&G back on track, though. Maybe Ackman could even recruit vaunted former Chief Executive A.G. Lafley to help.

It’s generally easier to get in and get heard at a smaller company. Ackman’s quarry, for example, has tended toward the scale of $4 billion J.C. Penney, where he owns a quarter of the company. Even with a $2 billion stake in P&G, Ackman would have a mere 1 percent of the U.S. consumer goods maker. Bigger companies also attract more regular scrutiny, often making their market valuations more efficient.

Advertisement

Of course, a squeaky wheel can effect change by bringing attention to even a big company’s underperformance. Ackman has a lot to work with at P&G. Since Bob McDonald replaced Lafley as CEO in 2009, the shares are up 16 percent. The S&P 500 index, however, has gained more than 40 percent over the same span, and rival Colgate’s stock is up almost 50 percent.

Shareholder aggression also requires a plan to win over other investors. Ackman did so at Fortune Brands by creating value with a carve-up. But the sum of P&G’s parts is worth between $175 billion and $208 billion, according to Sanford Bernstein. That’s not enough upside for such a wrenching upheaval. Reworking the balance sheet won’t help P&G either. And the company has a stellar record of returning capital to investors, having raised the dividend 54 years in a row.

That leaves management for Ackman to zero in on. Tighter cost controls are needed. P&G’s size and focus on big-brand products means margins should be significantly higher than peers. Uncharacteristic profit warnings and other slip-ups have come under McDonald’s watch, too. The sale of Pringles to Diamond Foods blew up partly for lack of properly vetting the buyer.

A change in the executive suite could be Ackman’s best hope. He poached Apple’s retail guru to try and turn around struggling J.C. Penney. Perhaps Ackman could enlist the retired Lafley, who doubled P&G’s market value during his nearly decade-long tenure, to return. James Kilts, the former head of Gillette, is another possibility. With P&G, though, if Ackman doesn’t go big, he’ll end up going home.

Read more at Reuters Breakingviews.

TODAY IN SLATE

History

The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Mitt Romney May Be Weighing a 2016 Run. That Would Be a Big Mistake.

Amazing Photos From Hong Kong’s Umbrella Revolution

Transparent Is the Fall’s Only Great New Show

The XX Factor

Rehtaeh Parsons Was the Most Famous Victim in Canada

Now, journalists can't even say her name.

Doublex

Lena Dunham, the Book

More shtick than honesty in Not That Kind of Girl.

What a Juicy New Book About Diane Sawyer and Katie Couric Fails to Tell Us About the TV News Business

Does Your Child Have Sluggish Cognitive Tempo? Or Is That Just a Disorder Made Up to Scare You?

  News & Politics
Damned Spot
Sept. 30 2014 9:00 AM Now Stare. Don’t Stop. The perfect political wife’s loving gaze in campaign ads.
  Business
Moneybox
Sept. 29 2014 7:01 PM We May Never Know If Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge
  Life
Atlas Obscura
Sept. 30 2014 10:10 AM A Lovable Murderer and Heroic Villain: The Story of Australia's Most Iconic Outlaw
  Double X
Doublex
Sept. 29 2014 11:43 PM Lena Dunham, the Book More shtick than honesty in Not That Kind of Girl.
  Slate Plus
Slate Fare
Sept. 29 2014 8:45 AM Slate Isn’t Too Liberal. But… What readers said about the magazine’s bias and balance.
  Arts
Brow Beat
Sept. 29 2014 9:06 PM Paul Thomas Anderson’s Inherent Vice Looks Like a Comic Masterpiece
  Technology
Future Tense
Sept. 30 2014 7:36 AM Almost Humane What sci-fi can teach us about our treatment of prisoners of war.
  Health & Science
Bad Astronomy
Sept. 30 2014 7:30 AM What Lurks Beneath The Methane Lakes of Titan?
  Sports
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.