Procter & Gamble Ousts CEO McDonald and Re-Hires A.G. Lafley

on May 24, 2013

Bob McDonald, the chairman and chief executive of Procter & Gamble, (NYSE:PG), was ousted on Thursday, May 23 after a four-year struggle to adapt the group to a new world of tougher global competition and thriftier consumers. The world’s largest household products maker announced late on Thursday that McDonald’s predecessor A.G. Lafley was replacing him, effective immediately, which sent P&G’s share price up by 0.69 percent to $78.70 in afterhours trading.

Investors have pushed for better performance from the maker of Gillette razors, Duracell batteries and Tide detergent over the past year. A year ago P&G unveiled a $10 billion (₤6.63 billion) restructuring programme and has since slashed thousands of jobs and taken other measures to improve operations. McDonald has spent the past year under scrutiny from both the board and investors, who were concerned that he wasn’t doing enough to help the company deliver more consistent results.

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The move to bring back Lafley was hardly a shock for Wall Street, said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel, as quoted by Reuters. “The board has a known quantity in Lafley. He knows everyone, he knows the systems, and now that Procter is on firmer footing, it expects Lafley to be able to push the company and its stock price higher,” said McCormick, whose firm has a large stake in P&G.

Lafley, who was P&G’s CEO between 2000 and 2009, helped the company push into emerging markets in Latin America and Asia as well as expand its global reach through the $57 billion (₤37.8 billion) acquisition of Gillete in 2005.
“The Board expects A.G. to further improve results, implement the current productivity plan, and facilitate an ongoing succession process,” Jim McNerney, presiding director of P&G’s board, said in a statement.

Lafley told the Wall Street Journal as saying that he had received a call just days ago asking him to take the helm at the company. “They called, duty called, and I agreed on the spot,” he said.
McDonald’s ousting is expected to please activist investor Bill Ackman, who has complained that P&G has underperformed its rivals and questioned whether senior management had confidence in their chief executive. Ackman, who took a $1.8 billion (₤1.19 billion) stake, or roughly one percent in the company in February 2012, has urged the board to replace McDonald. “We think this is one of the great businesses of the world, underearning relative to its intrinsic earning power,” the hedge fund manager said earlier this month.

**Analysts on P&G**
P&G said on Thursday it retained its guidance for the fiscal year, ending June 30, and the fourth-quarter. For the fourth quarter, P&G said profit should fall to $0.69 to $0.77 per share, from $0.82 per share a year earlier.
One analyst has rated P&G’s stock with a “sell” rating, eleven have given it a “hold” rating and thirteen have issued a “buy” rating. The company currently has a consensus rating of “hold” and an average price target of $80.86.
P&G’s share price was stagnant in 2010, 2011 and the first half of 2012, but has risen by more than 23 percent since July last year. The stock has added roughly 50 percent since McDonald became chief on July 1, 2009.
**P&G’s share price was $79.24 as of 24.05.2013, 08.00 BST.**


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