(Reuters) - Procter & Gamble Co PG.N said on Tuesday activist hedge fund manager Nelson Peltz lost his fight to win a seat on the company's board, according to a preliminary tally of shareholder votes in the biggest and most expensive proxy contest ever.

Peltz, whose Trian Fund Management LP owns a $3.5 billion stake in the world’s largest consumer products maker by market capitalization, refused to concede defeat, saying the vote was too close to call before the certified results are released.

Sources said the difference in for and against votes for Peltz’s board director nomination was well within one percentage point. An independent inspector is expected to review and certify the votes this month and Trian could then legally challenge the result.

“We anticipate Peltz, who has taken issue with the firm’s organizational structure, corporate governance, and recent financial performance, to contest the vote,” Morningstar analyst Erin Lash said.

If the outcome is confirmed, it would be a bruising loss for Peltz, given that P&G sought to turn the proxy contest into a referendum on his credentials as a seasoned executive in the consumer sector, with board director experience at Kraft Heinz Co KHC.O and Mondelez International Inc MDLZ.O.

Peltz had called for the maker of Pampers diapers, Gillette razors and Tide laundry detergent to reorganize into three business units: beauty, grooming and healthcare; fabric and home care and baby, feminine and family care.

P&G, led by Chief Executive David Taylor, countered that management is already working on several operational changes, and that Peltz does not have the relevant experience to be helpful in the process.

FILE PHOTO - Nelson Peltz founding partner of Trian Fund Management LP. speak at the WSJD Live conference in Laguna Beach, California October 25, 2016. REUTERS/Mike Blake/File Photo

“I shook (Peltz’s) hand, he shook my hand, and we said that just like we have through this proxy contest... folks want to make it a fight, but it is about ideas and the future. I told Nelson I will continue to listen to him as I have throughout this,” Taylor told a news conference after the shareholder meeting.

P&G shares were down 1 percent at $91.12 in afternoon trading in New York, giving the company a market capitalization of $232 billion. Its shares have risen 8.3 percent year-to-date, roughly in line with the S&P 500 Household Products Index .SPLRCPROD, which is up 8.5 percent.

RETAIL INVESTORS

Peltz was widely seen as the favorite to win the contest, because he had the backing of all three top shareholder advisory firms, which recommend how mutual funds should cast their vote, and was only seeking one board seat on P&G’s 11-member board.

“Win or lose, Nelson Peltz has taken the activist campaign to the largest companies, which have previously been able to inoculate themselves from these kind of experiences by spending enough money to keep activists at bay,” said Bruce Goldfarb, founder of Okapi Partners, which advises on proxy contests.

Several activist shareholders have won a seat on the boards of companies over the years by arguing there was no harm in them bringing onboard a fresh perspective. Trian’s defeat could embolden corporate America to push back more against activists.

The two sides collectively spent more than an estimated $100 million on mailings, phone calls and advertisements to woo investors.

Vanguard Group Inc, State Street Global Advisors and BlackRock Inc BLK.N are P&G's top three shareholders. State Street and BlackRock sided with Peltz, but Vanguard backed P&G, according to sources familiar with the matter.

Individual stock owners, such as retirees and amateur stock pickers, collectively hold about 40 percent of the company’s stock, a much higher proportion than at most big companies.

P&G’s large retail base is due, in part, to long-running stock-based incentive plans for employees and the attraction of its well-known brand names for “mom and pop” investors.

Analysts said this large pool of individual stock owners played a big part in Trian’s apparent defeat. They comprise mostly of P&G employees and retirees, who are loyal to management and can be wary of Wall Street’s intentions.

“At P&G, the proxy advisers are not going to have the same sway over retail investors,” said Jill Fisch, a University of Pennsylvania Law School professor who follows corporate governance.

This is only the third time Trian has waged a proxy contest in its 12-year history. Two years ago it narrowly lost a fight with DuPont, although within a year the company’s CEO was out a job and a faster cost cutting was underway.