The P&G-Gillette Merger: A Dream Deal?
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Authors: Ruchi Chaturvedi N & Pradip Sinha,
Faculty Member, Associate Consultant
ICMR (IBS Center for Management Research).
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Some analysts felt that the P&G-Gillette merger was a defensive move by P&G to check the growing power of retailers. In the retail industry, there has been a struggle for power between vendors and retailers, and retailers have taken the upper hand recently. However, other analysts disagreed, explaining it as an aggressive move for achieving growth rather than a balancing act. Some analysts felt that the deal was a right move as it aimed at product diversification. Davis Dyer, a corporate historian and author of Rising Tide, a history of Procter & Gamble, opined that acquiring Gillette would round out a personal care product range that tilted heavily toward women. He felt that it was more important, given the fact that P&G's recent acquisitions of hair care brands Clairol and Wella AG had reinforced that imbalance. |
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Unilever, P&G's archrival, had been under fire from investors for missing earnings targets, and had been forced to rethink its 2005-2010 strategy in light of low sales, changing consumer trends and price wars. The struggling Anglo-Dutch firm was already under pressure to improve its performance. It may need to acquire other firms to keep in pace with P&G. Unilever products included Calvin Klein fragrances, Birds Eye foods, Hellmann's mayonnaise, Lipton tea and Dove soaps. The Company announced on February 10, 2005 that although it had a 6% earnings growth for the third quarter, its business was hurt by strong competition and weak demand. Sales of its Ben and Jerry's ice cream and Lipton tea had fallen. The company said it was well into a five-year plan that included focusing on a smaller number of global brands and selling businesses that did not earn enough, putting the savings into promoting the core brands. P&G's entry into the male grooming market posed a further challenge to Unilever. Its Persil and Omo brands were already fighting a price war with P&G's Ariel and Tide in the laundry sector.
On January 28, 2005, Colgate-Palmolive (Colgate) announced that their fourth-quarter earnings had fallen by 23%. Colgate was cutting about 4,440 jobs and closing a third of its factories, reducing profits by 9 cents a share. Reuben Mark, the Chief Executive, planned to use savings from the revamping exercise to increase advertising and protect Colgate's lead over Crest, P&G's toothpaste brand. Colgate-Palmolive's toothpaste and Speed Stick deodorant would be battling with P&G's Crest toothpaste and Gillette's Right Guard deodorant. Shares of UK's Reckitt Benckiser and French pen and razor group Bic had moved up after P&G's Gillette deal on speculation that Colgate-Palmolive could be interested in these companies. However, the company announced it would not be engaging in any M&A activity for quite some time. Analysts said that the company was too busy with current restructuring to make any acquisition moves.