Activist Investors Focus On Consumer Goods

Consumer-staples giants such as Mondelez and PepsiCo too have become targets of investors pushing for more cost efficiency and growth.

The costly proxy war by billionaire investor Nelson Peltz for a seat on the board of Procter & Gamble sends a warning to rich consumer-goods makers sitting at a low revenue ebb to take an expansion route before impatient investors try to take the helm.

The maker of Tide detergent and Gillette razors declared victory in October—although by a slim margin—in the record $60 million battle that started when top shareholder Trian Fund Management in July tapped founding partner Nelson Peltz for election to the board.

Trian blamed a complex organization and “a slow-moving and insular culture” for the slowdown in revenue growth and market share suffered by P&G for years.

“Management has to move a little more aggressively,” says Joseph Agnese, senior analyst at CFRA Research. “Patience has grown a little bit thin among the investment community, so you’ve got to cut costs and start to push for investing in growth opportunities to try to get the top line to move a little bit faster.”

P&G, with a market value of $233 billion, is not the only big fish in the pond. Consumer-staples giants such as Mondelez and PepsiCo have become targets of investors pushing for more cost efficiency and growth.

“The sector has a lot of companies that have strong cash flows—but at the same time, because of changing consumer purchases and behavior, their top-line growth has been very slow for the past 10 years,” the analyst says.

 “Strong cash flows combined with sluggish growth are going to attract activists who are going to seek to cut costs more aggressively and participate in M&A to try to revive growth,” Agnese says. “If you do not do those things, you become a target for activists who come in and push to make those cost-cutting efficiencies for you.”

P&G has said it is committed to continuing its transformation journey and meeting the needs of consumers and shareholders.