November 19, 2017

Bruce Goldfarb Comments on P&G vs. Peltz for The Street

Here’s What’s Next For P&G and Peltz’s Bruising Boardroom Battle

An independent review says Peltz is ahead by 0.0016% of the vote. But P&G is awaiting final results so look for challenges and more squabbles.

By Ronald Orol

All looked lost for Nelson Peltz and his epic battle for a board seat at Procter & Gamble.

Initially, results issued last month by the iconic American packaged goods company showed that the activist investor had just under 50% of the vote. However, in a significant reversal, P&G conceded Wednesday that tabulations produced by IVS Associates, its independent inspector of elections, showed Peltz was “ahead” with a minuscule lead of 42,780 shares, or about 0.0016% of the total vote tally.

The packaged goods company said that the results are still “preliminary” and subject to review,” suggesting that it wasn’t yet fully ready to concede defeat. However, the vote is so incredibly close that it is possible the inspector of elections could produce a different outcome when it issues a final result in the coming months.

Bruce Goldfarb, chief of proxy solicitor Okapi Partners, agrees that the incredible closeness of the vote is unprecedented when considering the massive size of the company and the amount both sides spent on the campaign.

Before anything else happens, both sides must wait for the final results, which could produce an entirely different outcome for the boardroom battle. Goldfarb said he would not be surprised if the final IVS number is different than what was presented on Wednesday, adding that there usually are some votes that are subject to change but that they typically are immaterial to the final outcome. However, in this case, even small votes are not unimportant, and error associated with a small individual shareholder with 43,000 shares could swing the election in favor of P&G’s incumbent director. “The difference in the tally could be one voter,” he said.

Nevertheless, Goldfarb suggested that there was a good chance that prior to IVS issuing its final results in the coming weeks that either P&G or Peltz will challenge the result, which means they will have an opportunity to review both electronic and printed votes

“The party who is challenging will have also to allow the other side to review the material,” Goldfarb said. “Most of the challenges are around the form and validity of the forms submitted and reviewing the physical cards to determine whether they were executed and signed and dated and voted the right way.”

Goldfarb said that a company like P&G has a significant number of so-called registered holders who would have received proxy cards in the mail. Some of these votes would need to be corrected, he added. “They could have signed them wrong, or signed on behalf of a relative they didn’t have signing authority for or even someone who did not check the box right,” he said.

Alternatively, P&G could decide to accept the final results, whether or not they show Peltz won or not, merely because they show that a vast cross-section of investors supported the candidate. “In this instance, P&G could say ‘we’ve heard from enough of investors and determined it may be worthwhile to accept a compromise by Putting Peltz on the board,'” Goldfarb said.

Another proxy solicitor argued that there will be enormous pressure on P&G’s board to put Peltz on, primarily since the activist investor has offered to allow the board to expand its size to make room for the director he otherwise would kick off. He suggested that since the final result will still essentially show a “dead-heat” that it is hard for P&G to pursue a challenge given the embarrassment factor.

Another solicitor suggested that P&G CEO David Taylor is in a tenuous position and may decide to relent and give Peltz a board seat. The alternative could be litigation costs thrown on top of what is already one of the most expensive proxy battles of all time, considering solicitation fees and other expenses.

He added that alternatively, P&G could seek a court order to issue a temporary restraining order on the final numbers being released if it felt it had a credible case that the results weren’t entirely accurate. A court hearing could require Broadridge Financial Solutions Inc., which has a near monopoly on distributing proxy materials on behalf of banks and brokers, to produce its backup records, which includes millions of records.

The IVS results also raise questions about why the tally issued by P&G in October in an 8-K filing was so different from the preliminary results published by IVS on Wednesday. In October P&G reported that about 973 million shares voted for Peltz, just a little bit fewer than the 979 million shares backing his opponent, an incumbent director on the packaged goods company’s board.

Goldfarb said P&G likely put out an estimate in October and that it did not have specific information about many registered individual voters who sent their proxy statements to Peltz’s proxy solicitor directly. He added that P&G might not have had information from investors who voted at the annual meeting in Cincinnati because those proxies were collected by IVS directly. Also, a bank or broker could issue a particular investor a proxy card, which could have been sent to Peltz’s team without P&G’s knowledge.

“Did the company foot fault by putting out an estimate in October?” Goldfarb said.

Full story available here.