P&G Waiting on Action From Ackman

by Richard Young | August 21, 2012 11:33 am

Hedge fund manager Bill Ackman recently disclosed a $2 billion position in shares of Procter & Gamble (NYSE:PG[1]). P&G is a longtime staple on my Common Stock Monster Master List. Ackman pursues an activist investment strategy, whereby he often takes a large stake in a firm and agitates for change with the obvious goal of unlocking shareholder value.

Ackman’s recent successes include an effort to split up conglomerate Fortune Brands (NYSE:FBHS[2]) which resulted in a near doubling in the company’s stock price. Ackman also agitated for change at my favored Canadian Pacific (NYSE:CP[3]). Canadian Pacific shares are up more than 50% since the hedge fund manager first disclosed a position in the stock last October.

Ackman hasn’t shown his cards on P&G yet, but he is expected to seek deeper cost cuts to improve the company’s lagging profitability and changes in the company’s top management. The problem for Ackman is that P&G is one of the world’s largest companies. His $2 billion investment is equal to only 1% of the company’s outstanding shares. If Ackman is going to successfully agitate for change, he is going to have to get other P&G shareholders on his side.

I welcome an effort to enhance shareholder value, but if Ackman’s goal is to increase short-term profitability at the expense of long-term value, he isn’t likely to find many allies. My own view is that P&G’s problems have a lot more to do with an unusually long period of economic stagnation in the U.S. and other developed countries than management missteps.

Yes, P&G can probably trim some fat and do a better job in emerging markets where it has lagged competitors. But as I see it, P&G’s main problem is their premium products strategy. I don’t fault management for focusing on higher-end products. It is a better long-run strategy. You don’t build brand value by chasing cost conscious consumers.

In a more robust economy, P&G’s premium products strategy will excel. In the meantime investors collect a 3.4% yield and benefit from a recently announced increase in share buybacks. Buy.


  1. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  2. FBHS: http://studio-5.financialcontent.com/investplace/quote?Symbol=FBHS
  3. CP: http://studio-5.financialcontent.com/investplace/quote?Symbol=CP
  4. [Image]: https://images.investorplace.com/e_images/ryir/charts/0912/pg_lg.gif

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