MUMBAI: Procter & Gamble (P&G) has announced that it has signed a deal to acquire 100 per cent of The Gillette Company, founded in 1901. The transaction is valued at approximately $57 billion- making it the largest acquisition in P&G history.
The Gillette Company has a number of category-leading consumer products such as Gillette razors and blades including the Mach3 and Venus brands, Duracell CopperTop batteries, Oral-B manual and power toothbrushes, and Braun shavers and small appliances.
Under terms of the agreement, unanimously approved by the board of directors of both companies on 27 January, P&G has agreed to issue 0.975 shares of its common stock for each share of Gillette common stock. Based on the closing share price of P&G and Gillette stock on January 27, 2005, this represents an 18 per cent premium to Gillette shareholders.
P&G will acquire all of Gillette's business, including manufacturing, technical and other facilities. The transaction, which is subject to certain conditions including approval by Gillette's and P&G's shareholders and regulatory clearance, is expected to close in fall 2005.
In addition, P&G and its subsidiaries plan to buy back $18 to $22 billion of P&G's common stock during the next 12 to 18 months. Over time, this will essentially result in a total financial impact on the company as if the deal were structured with approximately 60 per cent stock and 40 per cent cash.
COLGATE FACES HUGE CHALLENGE
The announcement of the deal would have already sent warning bells reverbrating across the globe for rivals of the two consumer goods giants. In ampact terms the hardest hit would probably be Colgate-Palmolive, a direct competitor of both P&G and Gillette.
According to CBS' online affiliate cbs.marketwatch.com, the acquisition would add about 20 per cent to P&G's sales in a business where growth is hard to come by. A P&G acquisition of Gillette would be comparable to adding the entirety of Colgate's sales to P&G's top line.
Another spinoff from the merger would of course be that it would enable the two companies to combine the wealth of resources both possess as regards advertising, marketing, research and development and talent.
"This combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity," said Procter & Gamble chairman, president and CEO A G Lafley. "Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit. We are pleased James M Kilts, Gillette's chairman of the board, chief executive officer, and president will join P&G's Board of Directors and serve as P&G vice chairman - Gillette."
"This deal creates value for P&G shareholders and provides upside for P&G's sustainable growth prospects. Gillette and P&G are well-positioned to manage the integration, deliver revenue and cost synergies and retain strong leadership," said P&G chief financial officer Clayton C Daley.
"This marks the realisation of an historic next phase of great opportunity for Gillette and also for P&G. It brings together two companies that are complementary in their strengths, cultures and vision to create the potential for superior sustainable growth," said Kilts.
Berkshire Hathaway Inc (Gillette's largest shareholder) chairman and CEO Warren E Buffett said, " It's a dream deal. To quantify that, I intend to purchase enough shares so that by the time the deal is closed, we will have 100 million shares of P&G." Berkshire Hathaway currently holds 96 million shares of Gillette stock which represents the equivalent of 93.6 million shares of P&G.
Both, P&G and Gillette are built on leadership brands and P&G has 16 billion-dollar brands, to which, Gillette brings five more, creating a portfolio of 21 billion-dollar brands. The combined company will have the No 1 global market position in categories representing about two-thirds of total sales.
This combination of two best-in-class consumer products companies creates a stronger brand portfolio, opportunities for even more innovation, faster sales growth and cost savings synergies. As a result, P&G has raised its annual sales growth target from 4 to 6 per cent to 5-7 per cent. Also, P&G stated the combination provides future upside potential to its double-digit annual earnings growth target.
P&G expects to achieve revenue and cost synergies at a present value of about $14 to $16 billion, mainly through the scale of the combined company applied to leveraging P&G's unique organisation structure, removing duplicate costs and driving further efficiencies. P&G said it anticipates enrollment reductions of approximately 6,000 employees, or about four per cent of the combined work force of 140,000. Most of these reductions should come from eliminating management overlaps and consolidation of business support functions.
"We will field the best team possible to lead these new businesses, drawing from both Gillette and P&G management," said Lafley.
