Will Warren Buffett Back Bill Ackman in his $PG Crusade?

PERSHING SQUAREBill Ackman runs Pershing Square, an activist hedge fund that buys significant stakes in companies to influence management decisions. His recent high-profile activist investments have included JC Penney, Family Dollar Stores and Canadian Pacific. His unique activist investment style is often compared with other prominent hedge fund owners.

On July 12th, it was announced that Bill Ackman was acquiring a significant stake in Procter and Gamble. Ackman’s history as an activist suggests that he might be using derivatives to leverage his position. Rumors indicate Ackman’s total position could be equivalent to $2 billion in P&G (NYSE:PG) stock. His activist investments have largely been successful, and his recent success includes Kraft (KFT), Fortune Brands (FBHS), and Family Dollar Stores (FDO). For a list, see Bill Ackman’s Favorite Stocks. At market close Friday, P&G’s stock has risen 6% since news of Ackman’s stake was announced on Thursday.

Taking an activist role in Procter & Gamble could be Ackman’s biggest bet yet. An investment of $2 billion in P&G stock only equates to about 1% of P&G’s market capitalization ($178 billion). This would make Procter and Gamble one of the biggest companies that Ackman has tried to influence (yet). Discontent among P&G’s stakeholders could give more influence to Ackman to force out members of the board, senior management, or influence business decisions. However, given Ackman’s small stake, winning proxy battles still could be very difficult.

There are a few things in Ackman’s favor. P&G has stumbled the last few years; it initially moved slowly in international markets, had difficulty with containing costs, lost market share, and lost investor confidence with its drop in stock price (see below). P&G’s competitors include Johnson and Johnson (NYSE:JNJ), Kimberly-Clark (NYSE:KMB), Colgate-Palmolive (NYSE:CL), Unilever (NYSE:UN) and retailers’ store brands (ie. Wal-Mart’s “Great Value” brand). P&G stock was down 8.17% at the end of June while its competitors had positive appreciation throughout the year. P&G also had the lowest EPS and 2nd lowest Profit Margin out of the consumer giants.

Warren Buffett Bill Ackman PG

One of P&G’s main difficulties, increasing and retaining market share across its diverse product lines, have been of particular concern. P&G passed some of its higher costs to its consumers last year expecting its competitors to do the same. Instead, competitors chose not to raise their prices and P&G found it losing market share (rapidly). As a result, CEO Robert McDonald was forced to report profit warnings on P&G twice in the last fiscal quarter, which was not taken kindly by the Wall Streets analysts covering the company.

Bill Ackman has a plan (which he’ll eventually reveal) on how to turn P&G around, but he’ll have to influence significant shareholders to vote in his favor. His track record in recent investments should help him persuade. His activist role in Kraft was speculated to have made a profit of 163 million from an investment of 630 million. This likely pleased another large shareholder of Kraft at the time, Warren Buffett. Buffett was Kraft’s largest shareholder in 2011, but he was also largely disappointed in Kraft’s acquisition of Cadbury in 2010. The decision in 2011 for Kraft to split into 2 segments (largely credited to activist investors such as Ackman) resulted in a favorable price jump and was well-received by Buffett. Both Buffett and Ackman likely see eye-to-eye on business decisions.

Buffett’s Berkshire Halfway is also the largest individual shareholder in Procter and Gamble. Ackman has already proved beneficial to Buffett’s Kraft holdings. Considering both investors prefer long-term investments in a small number of companies, it isn’t farfetched that Buffett would back Ackman. The combined stakes of Buffett and Ackman would be impossible for P&G management to ignore. Ackman isn’t just betting that he can turn P&G around, he’s betting that Buffett will support him doing it.

Given Ackman’s record, this is a jolt for P&G management to wake up and that is great news for any P&G shareholder.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!