The P&G-Gillette merger announced recently is one of the biggest mergers in the history of the consumer goods industry. The merger will give P&G access to new products and markets, and change the dynamics of the consumer goods industry.
On January 28, 2005, Cincinnati-based P&G announced its investment deal to acquire Boston-based Gillette for $57 bn to become the world's largest consumer goods company. The annual sales of the combined entity would be $60.7 bn. After its purchase of Gillette, P&G would have 21 billion-dollar brands with a market capitalization of $200bn.
According to the deal, P&G will be paying 0.975 for each share of Gillette, valuing the acquisition at a 20% premium to shareholders of Gillette. The shareholders of P&G are apprehensive of the company's share prices being diluted. To avoid such problems, P&G has promised to buyback its shares, worth $18-$22 bn, over the coming 12-18 months. P&G plans to pay Gillette 40% in cash and the rest 60% in stock. Marketing guru Al Ries feels that, "The extra 20% premium paid by P&G for Gillette's stock is going to make it 20% more difficult for the deal to pay dividends to stock holders".
By acquiring Gillette, P&G will be adding the world's best shaving products to its portfolio. This is what P&G's CEO A G Lafley thinks is necessary to overtake their close competitors, particularly in developing countries. Both the firms' CEOs termed the deal as a friendly move, and added that it would benefit both the firms equally.
According to analysts, the merging companies had many similaritiesa corporate history that is more than a century old, billion-dollar brands, and pioneering consumer product marketing initiatives. The merger was also said to have been based on a different model where innovation was the focus rather than scale. |
