The month’s long battle between activist investor Nelson Peltz, who wanted a seat in the board at Procter & Gamble, and those who did not want Nelson’s team on board for fear that they might push to break up the company, came to an end with P&G claiming that its shareholders voted in favor of denying Nelson Peltz.

But Nelson Peltz denied that he lost, and says that the vote was too close to call and that he won’t accept defeat until an independent investor can confirm it. No one really knows how long this fight is going to drag on but, clearly, Nelson seems to be in no mood to give up. After all, he invested more than $3 billion in P&G, which would have taken his ownership of the company to around 1.5%.

Though Peltz’s track record may not have inspired confidence from P&G’s board, and for that matter no board would ever welcome an activist investor prancing in and forcing such changes, Peltz did raise some very valid concerns about P&G’s recent performance.

What is Going On with Procter & Gamble?

Most of the time, you have to give it to Warren Buffett for making the right call very early on. In this particular case as well, the Oracle of Omaha saw P&G’s problems coming from many miles away.

There was a time when Warren Buffett held millions of P&G shares. Today, he has none. At one point Warren had over $4.5 billion invested in P&G, making it one of his top four holdings. And he didn’t just cut his position, he cut and ran, selling every share he had last year.

Buffett didn’t buy P&G’s shares directly. He got his shares way back in 2005 when P&G bought Gillette, where Buffett was the largest shareholder and a board member.

If the man famous for his buy-and-hold-it-forever investment philosophy dissolved a multi-billion dollar position that he held for a very long time, then he must have had some valid concerns about the company he owned.

In 2012,  Warren Buffett told CNBC, “P&G’s earnings have been disappointing now for a few years. … What goes on in the place, what mistakes have been made, what the plans are, I don’t know the answers on that. … The jury’s out on that.”

Not many believed him at that point because P&G’s revenues kept moving forward after 2012 and peaked at $80.510 billion in 2014. But growth kept slowing down, and P&G thought a restructuring of its product portfolio would do the trick.

Nearly a year after Warren made those comments about his lack of confidence in Procter & Gamble, the company’s revenue’s hit the peak of $84.167 billion. Four years later, annual revenue has come down to $65.1 billion. Granted, the drop in revenue was mainly due to P&G selling off its brands, but Buffet clearly saw that its future was unsustainable, and got out at the right time.

Source: P&G’s 2013 Annual Report

Since then, P&G has gone into reorganization mode, and they either discontinued, divested or consolidated 105 brands in the last two years, while letting go of nearly $20 billion in annual revenues in the process.

P&G would not have sold brands which it thought had the best shot at growing in the current market, and would have also held on to brands that offered a good measure of profitability. But the hand-picked brands saw their organic volumes grow in low single digits – not a great place to be after you have spent years re-organizing yourself.

And when that happens you are going to get activists putting pressure on you the way Peltz is, and there’s no escaping that.

P&G management should have seen this coming, and at least shaken itself out of its slumber when Warren decided to break up with them. But they didn’t really bother to address his concerns, and now they not only have a struggling brand portfolio to manage under intense competition, but they will also have to keep working the press to keep activists at bay.

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