Case Study Procter Ang Gamble Merger With Gillette Marketing Essay

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1st Jan 1970 Marketing Reference this

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It’s being more than 100 years that Gillette Company manufactures consumer products that create strong brand loyalty among the consumers around the world. Gillette sells product mainly for men like blades, razors and shaving preparations. Gillette also has a strong position worldwide in some of the female grooming products, such as hair products. Company is the worldwide leader in alkaline batteries and is also famous for its Oral-B in manual and power toothbrushes. The Company has employed nearly 30,000 people globally and has 31 manufacturing plants in 14 countries.

About Procter & Gamble

Headquarters: It has it’s headquarter at Cincinnati.

Employees: No. of employees in the company are 110,000 in about 80 countries

Brands: Tide, Charmin, Folgers, Noxema, Pampers, Pringles and Pantene.

Founded: Procter & Gmable was incorporated in 1837 at Cincinnati by William Procter, who was a candle maker and James Gamble who was a soap maker. Both men contributed $3,500 billion to start the company as a startup fund.

Around four billion times a day, P&G brands touch the lives of people around the world. The company has one of the strongest portfolios of trusted, leadership brands and Quality which including Pampers, Tide, Ariel, Always, Whisper, Pantene, Bounty, Pringles, Charmin, Downy, Lenor, Crest, Actonel, Olay, Clairol Nice ‘n Easy and Head & Shoulders(R). The P&G community has almost 110,000 employees working in over 80 countries worldwide.

Highlights of the case with important dates of Merger

Important Dates-

January 28, 2005: Procter & Gamble announced their largest acquisition in its history. They agreed to buy Gillette in $57 billion and this deal involved or combined some of the world’s largest and top most brands.

January 27, 2005: Procter and Gamble agreed to issue 0.975 shares of its common stock in against each share of Gillette and this showed an18% premium to Gillette shareholders.

In 1986 -Revlon had tried and attempted its best to takeover Gillette in 1986 but it was not successful to do so.

In 1999- Procter and Gamble went with a proposal to Gillette but at that time Gillette refused the offer, then in November 2004, Gillette CEO James M Kilts, started merger talks with Procter and Gamble as he thought that it was the right time for such a move.

Highlights of the Merger-

The Merger was announced on January 28th 2005, Procter and Gamble decided to exchange 0.975 shares of its common stock for each share of Gillette. Thus, it leads to 18% of premium to Gillette shareholders. The merger was approved by the shareholders of both the company. After the merger Procter and Gamble immediately decided to buy back $18-22 billion of its common stock and this whole process of buy back took 18 months to complete.

After this process the deal was structured as 60% stock and 40% cash deal, while it was purely a stock- swap on paper. When the merger happened everybody knew that Procter and Gamble combined with Gillette would become the world’s largest consumer product company with $60.7 billion annual sales. At that time after the merger the new company decided to takeover Unilever which had total annual sales of $48.25 billion at that time. Proctor and Gamble after the merger had brands of $21 billion with market capitalization of $200 billion.

Once the merger was done Procter and Gamble shareholders owned approximately 71% of the combined company and Gillette shareholders owned 29% of the combined company. Both the companies expected that merger would bring great synergies. According to the deal between the two companies Procter and Gamble would acquire whole Gillette business which includes its technical, manufacturing and other facilities.

Gillette and Proctor & Gamble have almost same history, culture and core strengths in branding, scale, innovation and go to market capabilities, which made this merger a perfect one, people called this merger a “perfect marriage” because one innovative company acquired another innovative company to enlarge its product line and both companies faced low sales problem and both of them emerged as winners after applying same approaches. After acquiring Gillette as a whole Proctor and Gamble became the world’s second largest consumer products company with approximate sales of $61 billion. Procter and Gamble at the time of merger expected total gains and cost savings of $ 14 -$16 billion by lying off and eliminating 6000 people’s job.

When Proctor and Gamble started running in profits it acquired brands which matched its strategy such as Germany’s Wella AG hair care line, it also acquired Clairol for its hair care lines and Iams Company known for its pet foods. After the merger P&G had great earnings within few days as its net income jumped 12% from $1.8 billion to $2.04 billion. On January 27, trading in Procter and Gamble calls spiked to 8,172 contracts and Gillette’s call spiked to 4,788 contacts. This means that both the company had increase or more than five times the average daily volume. A single contract is equal to 100 shares.

Hurdles after the merger-

Procter and Gamble faced various challenges related to manufacturing facilities, workforce, work culture and integration of operations of the two companies which had functioned as an independent company for so long. According to the analysts lying off workers across countries is also a problem. Due to integration efforts demand Procter and Gamble also had to overcome the risk of not being able to focus on its functioning.

Main issues which made the merger important

According to the deal of Procter and Gamble and Gillette merger Procter and Gamble decided to exchange 0.975 shares of its common stock for each share of Gillette. Procter and Gamble decided to buy back its common stock after the merger i.e. between $18-22 billion. This made the deal 60 % stock and 40% cash deal. Both the companies thought that the merger to will bring heavy synergies as both are the best companies and combination of these two companies will lead to strong brand portfolio. After the merger Gillette had got more opportunities to sell its products in various developing markets like China and East Europe.

After the merger the combined entity layoff 6000 employees that are 4% of 140,000 combined work forces. This has to be done as both the companies had to integrate the headquarters and business operation units. The management is trying their best efforts to retain best employees from both the companies. Both the companies’ merger is an important and attractive deal as it has growth prospects, the revenue and cost synergies are attractive and innovation pipelines are strong.

Procter and Gamble decided about the potential regulatory or anti- trust barriers of this deal that they will closely review the deal and resolve any issues regarding the product that are overlapping between the companies as they have a good record of working with regulators in the competitive market place. Bankers involved in the deal were Merrill Lynch was representing Procter and Gamble and Goldman Sachs/UBS are representing Gillette.

Post Merger Scenario

After the merger it was a great financial success for both the companies, especially for Procter and Gamble as growth in its revenue tripled, it was reported that the company would have more than $ 60 billion sales a year. Procter and Gamble’s unit volume had grown 27% and its net sales also grew by 27% and have reached to $18.34 billion. P&G’s net earnings have also increased by 29% and have reached to £2.55 billion. This merger has made Procter and Gamble the world’s number one household maker leaving behind Unilever in the second place. The combined companies have total 21 brands under it and have the best global market position in product categories. After the merger the company will have more power to negotiate with advertising and media companies like television, newspapers, magazine and billboards.

Gillette and Procter and Gamble are actively involved in pilots like testing and learning the technology, developing a scalable solution, drive development to deliver business benefits and validate the business case.

Dealing with Wal-Mart

After the merger of Procter and Gamble and Gillette it had a great affect on Wal- Mart. As P&G is one of the world’s largest consumer products company and after Gillette joined it its sale almost tripled and it gave the company a new competition with retailers like Wal- Mart. As it is said those retailers don’t want its suppliers to be bigger than him and vice versa.

Procter and Gamble merger with Gillette had put great pressure on various other consumer products firms like Nestle, Colgate- Palmolive, Unilever and Kimberly- Clark.

Learning’s from the case study

Case study of Procter and Gamble merger with Gillette helps us in learning following:

Post merger scenario of both the companies after the merger.

Procter and Gamble was interested in buying Gillette because it wanted to improve and expand its product and target as many customers it can.

Both the companies agreed to merge because they knew it will be bring revenue, enlarge its product line and can become world’s largest consumer product company.

It is a kind of friendly takeover that is with consent of take over company and with consent of majority of shareholders.

Consideration for takeover is in the form of cash an stock both.

Buy back of securities i.e. after the merger Procter and Gamble immediately decided to buy back $18-22 billion of its common stock.

Merger effects on P&G and Gillette competitors like Wal-Mart.

Hurdle which both the companies faced after the merger.

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