PROCTER & GAMBLE: ‘DEAR BOARD, A BREAKUP MAY BECOMETHE BEST OPTIONS'

 

By Ben Levisohn

That’s the title of a new report Bernstein’s Ali Dibadj and team, who argue that “if fundamentals fail to improve over the next year under new leadership,” Procter & Gamble (PG) should break up. They explain why:

Business Wire

Procter & Gamble CEO David S. Taylor

Procter & Gamble is undergoing a series of laudable changes — it appointed a new CEO and divested a significant portion of the business, on top of cutting costs and improving its supply chain.
However, persistent earnings and stock underperformance relative to peers have created negative sentiment around the name, as we and investors look for ways to improve the company.
In this Blackbook, we make our case that a breakup may be best for Procter & Gamble, as larger breakups typically result in greater stock returns versus smaller divestitures; cost and top-line benefits appear elusive despite “scale”; there is sum-of-the-parts upside, and so on.
To be clear, there is a real chance Procter & Gamble’s fundamentals can improve as one company, but over the past few years, they have not; we, therefore, encourage the board and management to consider a bigger breakup, particularly if results do not inflect.

Barron’s Leslie Norton argued for a Procter & Gamble split back in November.
Shares of Procter & Gamble have dropped 1.6% to $75.97 at 3:43 p.m. today.

By Ben Levisohn

That’s the title of a new report Bernstein’s Ali Dibadj and team, who argue that “if fundamentals fail to improve over the next year under new leadership,” Procter & Gamble (PG) should break up. They explain why:

Procter & Gamble is undergoing a series of laudable changes — it appointed a new CEO and divested a significant portion of the business, on top of cutting costs and improving its supply chain.
However, persistent earnings and stock underperformance relative to peers have created negative sentiment around the name, as we and investors look for ways to improve the company.
In this Blackbook, we make our case that a breakup may be best for Procter & Gamble, as larger breakups typically result in greater stock returns versus smaller divestitures; cost and top-line benefits appear elusive despite “scale”; there is sum-of-the-parts upside, and so on.
To be clear, there is a real chance Procter & Gamble’s fundamentals can improve as one company, but over the past few years, they have not; we, therefore, encourage the board and management to consider a bigger breakup, particularly if results do not inflect.

Barron’s Leslie Norton argued for a Procter & Gamble split back in November.
Shares of Procter & Gamble have dropped 1.6% to $75.97 at 3:43 p.m. today.