Procter & Gamble's (PG) stock price is up nearly 6 percent since last Thursday's announcement that Pershing Square Capital Management's William Ackman has taken a $2 billion, or 1 percent, stake in the consumer-product manufacturer.
Ackman is known for taking large investment positions in companies to try to sway management and advocate for change with the end goal of making big profits.
P&G has struggled in recent years as the economy continues to weaken; the company cut its full-year 2012 earnings forecast since January. Its stock is down 3 percent year-to-date and has flatlined since Chief Executive Robert McDonald took the helm at the beginning of 2010.
While the economy has played a role in P&G's poor performance, the company is also suffering from major strategy snafus, including its delayed move into emerging markets, high overhead costs and a decision to sell premium brand products at premium prices.
According to Bloomberg reports, P&G board members are displeased with McDonald's record and have considered ushering in former executives to take the top post.
- More aggressive cost-cutting: Procter has already announced massive restructuring plans. But Mohsenian's "analytical works shows that PG has more room for cost-cutting on the job cut/SG&A front, at the same time that goals under its existing program look too high."
- Organizational changes: Mohensian think that management changes are coming. And she thinks that investors and analysts would welcome it.
- Strategic Actions: Divestitures or split ups wouldn't be surprising. Procter recently divested its Pringles business. And in past investments, Ackman has pushed for splitting up companies.
But P&G is one of the largest U.S. companies by market capitalization, currently valued at of $178 billion, and Ackman's small stake may make it difficult for him to lobby for change. He has tried to persuade McDonald's (MCD) and Target (TGT) to spin off their real estate holdings into REITs. In both instances, Ackman's proposals did not come to fruition and he was forced to walk away.
"I think it is crazy and when Bill Ackman attempted this in Target he got decimated," says retail and turnaround expert Howard Davidowitz, chairman of Davidowitz & Associates.
Whereas Ackman's stake in McDonald's doubled Pershing Capital's investment, his position in Target cost the fund nearly 80 percent of its value in 2008, according to The Wall Street Journal.
"He's made a number of brilliant investments," Davidowitz says. "I give [him] full credit for [his] brain power and ability to recognize value, but you cannot mix that up with running a business."
Davidowitz is referring, namely, to Ackman's investment in J.C. Penney (JCP) where he was able to influence management.
"[J.C.] Penney is in the process of … destroying itself and Bill Ackman is actively involved, decimating one of America's greatest and oldest department stores," says Davidowitz, noting that Ackman is largely responsible for helping choose the department store's latest CEO, Apple's retail store guru Ron Johnson who took the reins at J.C. Penney last November.
Under Johnson's leadership, J.C. Penney instituted a three-tier price structure and eliminated coupons and sales, which did not sit well with consumers. The company has since backpedaled on the strategy and axed its president who was allegedly responsible for the pricing model. Additionally, the retailer's decision to hire lesbian talk show host Ellen DeGeneres as its spokesperson raised questions about J.C. Penney's new image and turnaround.
The retailer's stock price is down 44 percent year-to-date.
While Ackman has a fairly good track record, Davidowitz thinks he should stick to investing and stop trying to run companies. His advice to P&G investors and management is to fight Ackman until he goes away -- just like what happened at Target a few years ago.
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