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 Click to see monthly returns in table format!

Lists

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

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!