The Procter & Gamble (P&G)-Gillette Merger

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Case Details:

Case Code : BSTR159
Case Length : 19 Pages
Period : 2005
Organization : Gillette, Procter and Gamble
Pub Date : 2005
Teaching Note : Available
Countries : USA
Industry : FMCG

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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P&G Gets the Razor Edge Contd...

At the same time, Gillette had also grown since Kilts joined the company in 2001. Rivals such as Energizer5 and Rayovac6 made attempts to diversify to compete with it (Refer Exhibit I for a note on Gillette's competitors). Commenting on the merger deal, Kilts said, "We believe we can bring these companies together and create a juggernaut". He added that he was a great believer in scale and did not want to "get stuck with the leftovers"in a consolidating sector7.

According to analysts, the merging companies had a lot of similarities -a corporate history more than a century old, billion-dollar brands, and pioneering consumer product marketing initiatives.

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They called it a unique case of acquisition by an innovative company to expand its product line by acquiring another innovative company. Analysts said both companies had faced similar problems of low sales and dwindling profits around the year 2000 and both had emerged winners after following similar approaches. Both the companies had focused on strong brands and cut down costs to ensure productivity gains. They described the merger as a "perfect marriage".

Some analysts also viewed the merger as a move to bring the consumer goods manufacturers on par with retailers, who had gathered considerable bargaining power.

However, analysts were concerned about P&G's handling of the risks accompanying the biggest merger it had planned to undertake in its 168-year-old history. This merger was 10 times bigger than P&G's largest purchase earlier8. Therefore, analysts felt that the scale of the merger would make the integration a huge challenge. Further concerns were raised by analysts with relation to the integration of the workforce and the culture of the two companies, especially as there would be massive layoffs across countries.

They also feared that P&G could face the risk of not being able to concentrate on its functioning due to the demands of the integration effort. They felt that the formulation of country specific strategies for the combined firm could take considerable time. Critics also pointed out that P&G already had some in-process integration of Wella that it had acquired in 2003 and this could also divert the management's attention and energies away from the current integration.

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5] Energizer Holdings Inc., is the world's largest manufacturer of dry cell batteries and flashlights. For the year ended September 30, 2004, it had net earnings of $267.4 million on sales of $28.1 billion.

6] Rayvoc Corporation is the third largest battery manufacturer in the US. It had sales of $1.4 billion and profits of $55.8 million in 2004.

7] David Litterick, "Procter & Gamble swallows Gillette in $57bn deal,"The Telegraph, January 29, 2005.

8] Purchase of Wella AG in 2003 for $5.7 billion.


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