Additions to Topic 1 Case P G Acquires Gillette

Additions to Topic 1 Case: P&G Acquires Gillette

The key parameters (1) • January, 28, 2005: P&G announced an agreement to buy Gillette • The payment scheme: share-for-share exchange • Deal value: 55, 6 billion of USD • 18% premium over Gillette current price share • Simultaneously, P&G announced a stock buyback of $18 to $ 22 bln (debt funded) 2

The key parameters (2) • The joint entity would retain the P&G name • The deal expected to dilute 2006 earnings by about 15 cents per share. • The firms were to divest excessive businesses (deodorants, oral care) • The portfolio – 50% of personal care, healthcare and beauty products and 50% of razors, blades and batteries 3

Information about companies • P&G – premier marketing and product innovator • Gillette is known for its ability to sell razors and hook customers to a lifetime of razor blades • Though Gillette was No. 1 in the lucrative toothbrush and men’s deodorant markets, it had difficulties with its Duracell battery brand. It was No. 1 but suffered from the competitors’ price war • Pressure from the retailers (30% of world sales are to Walmart) 4

Brands portfolio of the joined company 5

Corporate culture • P&G’s corporate culture was described as conservative, the philosophy “promote-fromwithin” prevailed • Gillette’s CEO had become vice chairman of the new company 6

Questions • 1. What type of the deal was this one (use all the criterions you know)? • 2. What are the motives for the deal? • 3. Immediately after the announcement, P&G’s share price dropped by 2% and Gillette’s share price rose by 13%. Explain why. • 4. Why P&G decided to buy back shares at the borrowed money? Would it help the company or hurt it in a long run? • What obstacles may the companies face on their way in integrating their businesses? 7