Decision time in P&G boardroom brawl

A costly months-long battle over the direction of one of America's biggest companies culminates on Tuesday with a shareholder vote at Procter & Gamble headquarters in Cincinnati.

The fight pits the maker of Gillette razors and Olay soap against activist investor Nelson Peltz, 75, a billionaire hedge fund chief who has pitched himself as the outsider needed to reignite P&G, the largest company by market capitalization ever to face a proxy battle.

The grizzled veteran of high-profile boardroom brawls accuses the company of operating with excessive cost, being weak on innovation and missing the boat on key shifts in consumer behavior.

Peltz, whose firm Trian Partners holds 1.5 percent of P&G shares, attributes declining market share in key businesses to P&G's "slow moving and insular culture."

His campaign has been fortified by support from respected proxy advisory services, including Glass Lewis, which said a new voice might help reinvigorate a giant that appears to suffer from a "degree of complacency."

P&G counters that Peltz's campaign is based on an outdated perspective on the company and ignores key hires of outsiders as well as progress since its decision in 2014 to divest dozens of underperforming products in order to target giant brands that resonate best with consumers.

Company executives also say Peltz's campaign seems to be motivated mostly by short-term gain to the potential detriment of long-term performance.

"We strongly recommend you give us the opportunity to finish this transformation," chief executive David Taylor said on an October 3 investor conference call.

Whoever wins, the battle has been costly. P&G has estimated that it will spend $35 million to try to keep Peltz off the board, while Trian has said it expects to spend $25 million, according to securities filings.

- Outlook is improving -

P&G has reported revenue declines for the last three years, pointing to the drag from the strong dollar that has caused it to underperform against European rivals Unilever and L'Oreal in some key benchmarks.

But macro conditions are improving for P&G due to the declining dollar, said CFRA Research analyst Joe Agnese, who praises some of Peltz's ideas but also sees benefit in giving management more time.

"The environment is improving for them with or without him. And that's why I think it's not a big negative if he's not voted onto the board," Agnese said.

"But I do see that having a diverse board with different ideas is a positive also."

Taylor, who joined P&G in 1980, assumed the top spot in November 2015, replacing A.G. Lafley, who was brought back to the company out of retirement in 2013 to take over from Bob McDonald, another long-time P&G executive whose selection in 2009 board members now concede was a mistake.

- Debate on big brands -

Among his charges, Peltz has hit P&G for misreading US shaving, where P&G stalwart Gillette has lost market share to upstart digital companies such as Dollar Shave Club, which was acquired last year by Unilever.

In China, P&G was slow to perceive a shift among consumers to "trading up" to premium diapers. Part of the problem, according to Peltz, is that P&G is to slavish towards big brands at a time when they are in decline and small and local brands are ascendant.

"Consumers used to trust big brands," Trian said in an investor presentation. "Many millennials now distrust big brands and seek out purpose-led brands."

P&G has acknowledged some missteps, conceding that it did not perceive the shift in China. But it has unveiled its own direct-to-consumer shaving program under Gillette.

The company pushed back on Peltz's attacks on big brands, saying that the best-known names dominate smaller format markets in urban areas, a key growth venue.

Better known names are also more likely to appear on the first page of major e-commerce sites, Taylor said.

Taylor rejected the depiction of P&G as weak on innovation, saying launches of major new incontinence and detergent performed better in consumer surveys as sub-brands under "Always" and "Downy," rather than as new product launches.

Taylor said he respected Peltz, but that much of the activist's thinking appeared to be framed by his experience with companies like PepsiCo and Heinz.

"What he most of the time talked about are food examples, which are very different from the business we are in," Taylor said. "I think he's projecting food onto our business."