Procter & Gamble acquired Gillette

Subject: Merger & Acquisition (Module V) (Finance)

Submitted to: Prof. Milan Shah (Gandhinagar Institute of Technology)

Submitted by: Parth Patel (107150592058)

Introduction Merger and acquisition have been the buzz word in the last two decades. Not that were no merger happening earlier but the last two decades have seen the numbers swell. The Merger & Acquisition activity has not remained confined to any particular industry, but has quite widespread. One such Merger & Acquisition has been that of Procter & gamble and Gillette. It has been the biggest acquisition in the history of consumer goods, and has changed the equation in the market. History Product such aspen tent pro-v, head & shoulder tide detergent powder. This expansion continued when in June 2000 it launched Pantene lively clan stating that its unique provitamin formula clean oil-build up, dirt and grime in just one wash, delivering lively, free flowing and sparking clean hair. New Ariel power compact detergent claiming that its new global technology breathes new life into clothes, by removing dinginess and restoring the original colure of the fabric. The product expansion continued with a wide variety of product being introduction in the market. Gillette India- the mans world Gillette India ltd. was one of the premiers FMCG. It made a name for itself in the Indian market with product such as Gillette March3, Gillette turbo oral-B, and Duracell. The company has constantly worked to bring out high quality, value added products for the customer. GILLETTE India offers a range of products for a range of products for customer, ranging from 7 eject PII shaving system , shaving cream, Gillette prestro ready shaver, oral.B, Gillette sensor excel saving system, shave gel, deodrants, and conditioners. Very few realized that the offer was a compulsion rather than choice, because marketing pressures forced companies to diversify.

The Acquisition Cincinnati-based P&G announced its decision to acquire Boston based Gillette for $57 billion, setting the stage for becoming the words largest consumer product company with annual sales of $48.25 billion the new company would overtake $21-billion brand with a market capitalization of $200 billion after the acquisition. The CEO of both the companies felt that deal was a friendly move, which would benefit both of them equally.

The Deal P & G would pay $0.975 for each share of Gillette valuing acquisition at a 20% premium, P & G agreed to pay Gillette 40% in cash and 60% in stock. The shareholders of P & G were a little apprehensive that deal would dilute the companys share price. Critics felt that the 20% premium paid by P&G for Gillette's stock would make it difficult for the company to pay dividend to shareholders. WHY GILLETTE? P & g was strong in womens personal care product while Gillette's strength was in mens grooming category. Gillettes stock had calmed 50% since 2003 on account of jump in profits on premium products. It was estimated that the acquisition would add about 20% to P & G sales and the long-term sales would grow by an estimated 5-7% a year. Operating margin by 25% by 2015 from 19% in 2003. The companies also expected cost saving of $ 14-16 billion from combining back office operations and exploring new growth opportunities. The acquisition would also bring down the advertising and media costs owing to greater bargaining power. Gillette it was felt would give exposure to P & G in emerging economics such as India and Brazil while P & G would distribute Gillette product in China. The acquision would give P & G the much needed boost to further strengthen its product category where at present it has negligible presence. The deal would help Gillette in improving its inventory days.

The Concerns In introduction latory hurdles because would prevent us companies from expanding would make them vulnerable to foreign competition, objective wee expected from the European union antitrust regulator as the deal would give the merged company added strength in the overseas market . It was felt that the formulation of the country specific strategy for the combined firm could take consideration time critics also pointed out that p& g already had some in process integration go Germanys leading cosmetic supplier that it had acquired in 2003,which could divert the managements attention and energies away from the current interrogation . INTEGRATION ISSUES It was expected that the acquisition would result in around 6000, job cuts, equivalent to the 4% of the two companies combined workflows of 14000. The two entities did not face cultural problems because of their geographical proximity. Another matter of the concern was that P&G was considers a promote from within the company, and already had a lot of executive at the top. P&G ability to handle this massive culture assimilation would decide the success or failure of the acquisition. FUTURE OUTLOOK The two entities took the bold view that problem would remain and that they should not worry too much about them. They decided to cross the bridge when they came to it. P & G Gillette it was felt could be a transformative deal for the industry because growth potential. Analysis forecast that deal lead to further consolidation in the industry. CONCLUSION The two companies finally decide to work together and explore the growth the industry had to offer rather than warring too much about what critics had to say and what regulator fact .the merge entity is doing well growing with passing day.