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 combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity."

- AG Lafley, Chief Executive Officer, P&G.1

"This marks the realization of an historic next phase of great opportunity for Gillette and also for P&G. It brings together two companies that are complementary in their strengths, cultures, and vision to create the potential for superior sustainable growth."

- James M. Kilts, Chief Executive Officer, Gillette Co. (Gillette).2

"This merger is going to create the greatest consumer products company in the world. It's a dream deal."

- Warren E. Buffett, Chairman and CEO, Berkshire Hathaway Inc., Gillette's largest shareholder.3

"Mergers that increase market share are generally productive because they increase market share and reduce competition. We don't think that the two companies combined will be any stronger, from a marketing point of view, than the two companies would have been if they were kept separate."

- Al Ries, Consultant, Ries & Ries Consulting, Georgia.4

P&G Gets the Razor Edge

With Cincinnati-based P&G announcing its investment deal to acquire Boston-based Gillette for $57 billion, the stage was set for it to become the world's largest consumer products company with annual sales of $60.7 billion. The new company would overtake Unilever, which had sales of $48.25 billion in 2003. After its purchase of Gillette, P&G would have 21 billion-dollar brands with a market capitalization of $200 billion.

In the past, Gillette had been considered as a company averse to mergers. Revlon Inc. (Revlon) had attempted a hostile takeover of Gillette in 1986 but was not successful.

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In 1999, P&G had approached it with a takeover proposal but Gillette had turned down the offer.

Therefore, when Gillette's CEO, James M Kilts (Kilts), started merger talks in November 2004, saying that the timing was ripe for such a move, it came as a surprise to analysts. The price issue left the merger talks deadlocked for a month. But later, A G Lafley (Lafley), CEO of P&G, restarted the talks in January 2005.

Analysts said the merger was a brave move by Lafley who had led P&G during difficult times after he joined the company in 2000. Lafley changed the company's focus from household products to the fast growing health and beauty products. The company bought hair care firm Clairol from Bristol Myers Squibb in 2001 for $4.9 billion and German hair care firm Wella AG (Wella) in 2003 for $7 billion.

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1] Carolyn Pritchard and Dan Burrows, "P&G in $57 billion deal to buy Gillette,", January 28, 2005.

2] "P&G Acquires The Gillette Company,"press release, PR Newswire,, January 28, 2005.

3] Carolyn Pritchard and Dan Burrows, "P&G in $57 billion deal to buy Gillette," January 28, 2005.

4] ICMR Case Studies | Case Study in Business, Management.


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