January 28, 2005

P&G plus Gillette

In case you have been in a no-media zone this morning, Procter & Gamble has announced that it will acquire Gillette Company. The WSJ article is here.

According to the terms of the deal, Gillette shareholders will receive .975 shares of P&G for each share of Gillette that they hold. According to the press release, P&G plans to repurchase approximately 40% of that newly issued stock (valued at between $18 and $22 billion) within the next 12-18 months. Of course, Warren Buffet's Berkshire Hathaway stands to benefit the most from this merger, owning 96 million shares of Gillette and announcing that it will buy more in anticipation of the merger.

The merger of the two companies will create "the world's largest consumer products conglomerate." Both companies are strong, diversified companies, so one wonders what uncaptured synergies there could be here. The WSJ article points out that P&G is adept at taking innovations from one product and transferring it to another product, so there may be opportunities to improve existing Gillette products. In addition, the companies are stating that the merger will give them more negotiating power with the most powerful buyer of consumer products -- Wal Mart. I am sure that's true, but I can't help but notice that other closely related companies are stating that they have to merge to compete with Wal Mart (Sears & KMart). This merger will face some regulatory scrutiny because many of their products overlap (Crest/Oral-B; Secret/SoftnDri; Old Spice/Right Guard. When technology companies merge and have to explain reasons why to the DOJ/FTC, they usually throw in the rationale that they have to merge to compete with Microsoft.

Posted by Christine at January 28, 2005 10:28 AM | M&A