P&G pressured by largest shareholder to modernise, digitise

NEW YORK (BLOOMBERG) - The world's biggest consumer-products maker is being pressured by one of its largest shareholders to set aside "suffocating bureaucracy" and pursue new brands and online sales.

Procter & Gamble needs to reorganize its business units, invest in smaller, high-growth brands and prioritise its digital strategy, billionaire Nelson Peltz said in a 93-page plan for modernising the company.

Those recommendations Wednesday come amid an escalating battle over his push for a seat on the board of P&G, the owner of high-recognition brands including Bounty, Gillette and Tide. The previous day, former chief executive officer John Pepper emerged from retirement to oppose Mr Peltz's bid, warning it risks "putting a serious brake on our momentum" and setting the company on the wrong course.

Mr Peltz's Trian Fund Management owns about US$3.5 billion (S$4.7 billion) of P&G stock, making the shareholder activist the company's sixth-largest investor, according to data compiled by Bloomberg.

Mr Peltz is calling for P&G to reorganize into three largely autonomous units: A beauty, grooming and healthcare business; a fabric and home-care division; and baby, feminine and family-care products. Each unit would have regional leaders with full control over operations in their areas.

The move would break up P&G's "matrix" organisational structure, which Trian said slows decision making as well as the company's ability to respond to market changes.

"P&G has resorted to short-term measures, such as selling brands instead of fixing them, that did not address the root cause of its underperformance," the New York hedge fund said in a statement accompanying the paper on Wednesday. Despite numerous turnaround plans, portfolio changes and chief executive officers, the company continues to suffer from eroding market share, aging brands, high costs and executive compensation and a "suffocating bureaucracy", Trian said.

P&G said Trian has an "outdated view" of the company and its board and management will review the white paper in more detail.

"The fact is P&G is a profoundly different company than it was just a few years ago," the Cincinnati-based company said in an e-mailed statement. "We are much better positioned from all angles. We remain focused on delivering our plan, while preventing anything from derailing the progress we are making to create value for all P&G shareholders," it said.

P&G, with a market valuation of about US$236 billion, is working to transform itself into a more nimble business that can navigate the era of Amazon.com, in which household staples are increasingly likely to be bought online rather than off the shelves of supermarkets and drugstores. Current CEO David Taylor's turnaround plan got a dose of credibility in July after P&G's earnings exceeded Wall Street's expectations.

Mr Peltz, who's up for nomination at the company's annual meeting on Oct 10, is "open-minded and receptive to superior ideas" about the best path for P&G, according to Trian's statement.

Among his recommendations, Mr Peltz wants cost cutting at P&G to be redirected to ensure it improves earnings and sales growth, claiming that US$10 billion in savings from a 2012 productivity drive hasn't improved operating results. Adding him to the board will help ensure the current target of US$12 billion to US$13 billion in savings will be used more effectively, according to the white paper.

P&G should acquire and integrate smaller, high-growth brand to reflect a shift in consumer trends toward more local producers, Trian said. The company should also examine why it has failed to innovate after failing "to create a new meaningful brand in nearly 20 years".

Trian is also urging P&G to prioritize its digital strategy as new e-commerce brands enter the market, citing online razor-subscription services Dollar Shave Club and Harry's as significant competition to P&G's Gillette brand. Dollar Shave Club, which sells razors for as little as US$1 a month, was acquired by Unilever last year in a deal worth about US$1 billion.