Procter & Gamble’s Acquisition of Gillette

Introduction

Established in 1837, Procter and Gamble has developed to become the most formidable power in the consumer packaged products industry. P& G (Procter & Gamble) and its subsidiaries offers branded consumer products and it consumer products are sold currently in more than 180 countries. Three global business units of P&G are Household care, Health and Well-Being and Beauty. Some of its famous brands are Head& Shoulder, Pantene and Oral-B.

Main body

On first October, 2005, it acquired The Gillette Company. The acquisition was completed in share for share swapping valued at $56 billion. For this prestigious acquisition, P&G paid a premium of 18% over Gillette’s preannouncement share price. Immediately after acquisition, P&G also declared a stock buyback ranging from $ 18 to $ 22 billion mainly funded by issuing of new debt instrument.

After the acquisition, P&G name is being retained and their turnover crossed more than $ 60 billion in 2005. Just prior to acquisition, Gillette turnover was $10.5 billion in 2004. P&G acquisition of Gillette offered P&G with international market leadership especially in male grooming, alkaline batteries, selected women’s grooming products and both in power and manual tooth brushes.

To secure regulatory approval, the two companies had to dissociate from some overlapping business operations like oral care and deodorants. P&G accomplished the divestiture of Rembrandt product line, RightGuard and other Gillette deodorant brands toothbrush and Spinbrush toothbrush business during the fiscal year ending 2006.

P&G is often regarded as a premier product innovator and pioneer marketer. The acquisition will be more likely to boost P&G’s marketing and R&D’s skills in promoting and developing women’s personal care products and could be employed to boost and promote Gillette’s women’s razors. (DePamphilis 38).

Gillette is the well known for its capability for a less expensive product like razor and clasp consumers to a lifetime refills like razor blades. Though, Gillette was the market leader in toothbrush and men’s deodorants, it had been less successful in enhancing its profitability in its Duracell battery product line. In the battery business, it had been witnessing a cutthroat competition from Energizer and Rayovac Corp which is having a good market share in battery than Gillette due to its competitive pricing policy.

Both Gillette and P&G are witnessing a substantial competition from industry mergers like Sears and Kmart and Wal-Mart. Wal-Mart is the major customer for both P&G and for Gillette.

After merger, P&G is having more negotiating leverage especially with retailers for determining selling price and for shelf space. The wider geographic presence of P&G will help to market batteries and razors both in emerging economies like China and India. Immediately after merger, the cumulative cost reduction strategies yielded about $ 16 billion savings which includes downsizing of about 4% of new company’s total strength of workforce amounting to 140,000. The realization of such cost cuts is to be made through integrating Gillette’s deodorant products into P&G’s brand as early as possible. However, the Gillette’s other products like batteries and razors are expected to remain unharmed.

Net Sales of P&G (In million $):

2008 2007 2006
Net Sales 83,503 76,476 68,222

It is to be noted that prudent corporate strategies foster value through parenting advantage. Parenting advantage happens when a company fosters more value than any of its competitors could if they run the same business. Thus, Gillette acquisition by P&G facilitated to increase its sales by 23% in 2008 as compared to its sales in 2006. P&G also reported in increase in profits substantially after merger. These demonstrate strategic value of the Gillette’s acquisition which was acclaimed as a ‘dream deal’ by many industrial observers. According to Morgan Stanley, the P&G results are unequivocally vibrant and the stock had pretty built-in valuation that is camouflaged by charges and intricacies of the Gillette’s dilution.

It is to be noted that positive effect of the Gillette takeover was only modestly hollowed by higher commodity prices, acquisition costs and costs pertaining to Hurricane Katrina which sheared a penny off P&G revenues per share through its coffee business. (Henry 246).

P&G medium-term strategy is to strip off of its some slower growth products like Jif peanut butter, Oxydol laundry detergent and Clearasil skin care product and to spotlight more on its successful products. In 2007, P& G announced its strategy to spin off its Folgers coffee business. In 2006, as a part of its brand-shedding strategy , its disposed its SURE deodorant line of business to Najafi Companies ‘ which earlier bought its Perr line of Shampoos.

Procter and Gamble long-term strategy is to enhance the consumer’s time-proven faithfulness in major part to its classy market research attributes and brand marketing techniques. In 2007, P&G proclaimed that it would be revamping its structure into three global units, fragmenting the Gillette business.

Conclusion

Thus, no doubt, Gillette’s acquisition by P&G was a direct step on the right direction as it offered to consolidate its market position in global market. The acquisition not only increased P&G revenues but also helped to expand its product lines and P&G ‘s bargaining power among its customers.

Works Cited

DePamphilis, Donald M. Mergers, Acquisitions and other Restructuring Activities. Missouri: Academic Press, 2007,

Henry Anthony. Understanding Strategic Management. Oxford: Oxford University Press. 2008.