Two to Tango
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Authors
Authors: Pradip Sinha & Sadhu Ramakrishna
Associate Consultant, Research Associate,
ICMR (IBS Center for Management Research).
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Pros and Cons
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As every coin has two faces, this coporate marriage too has both its sides. How will both P&G and Gillette benefit from one of the largest corporate marriages of the recent times? What are the ideal factors that act as catalysts and the ones which will go against these giants? Undoubtedly the $57 bn deal will redefine the fortunes of global FMCG business as a whole. The deal will give P&G the much needed power against its biggest competitor, the Dutch -based Unilever. Further the combined firm will have estimated annual sales of $60.7 bn thus elevating P&G to the second position next only to the world's No. 1 food maker Nestle. According to Nikhil Vora, the Vice- President of SSKI Securities, "it is a win-win situation for both the companies, as P&G gets the necessary personal grooming range of products in its selling kit and on the other hand Gillette gains the leverage of P&G's distribution network along with its hold and presence in developing countries, like China." The deal will give P&G the high bargaining power with retailers like Wal-Mart, which can now even squeeze the largest suppliers for lower prices. |
But according to Nirmalya Kumar, Professor of Marketing, London business school, "there may be some minor positive impact, but more negotiating power vis-a-vis global retailers is not going to amount to much, as Wal-Mart does not negotiate prices with P&G as a whole but by product by product".
According to some of the business analysts, the deal will create an enterprise which will be unmatched in geographical reach and competition. Further, it will give P&G the advantage to introduce the products of Gillette in the developing countries like China, where it has a strong presence. P&G's profits in China have risen by an average of 140% a year, which is something Gillette will strive for. The deal will give P&G an additional hold in the upcoming market of men's shaving product, an area where its biggest rival Unilever does not have any presence at all. According to a former UK-based Gillette employee, "the deal will help Gillette to improve its inventory days. Though Gillette has got strong brands, but it is very insufficient operationally from market standards. At present, Gillette operates at 120 days with the standard (CPL) of 80-90 days. The deal will help Gillette overcome this inefficiency.
Well, all this is fine and good, but there may be some hitches which can come as hurdles in the successful running of this mega deal. Time and again, it has been proved that cultural differences are the root causes for the failure of any merger or acquisition. Almost 75-85% of these corporate mergers get affected by this reason either directly or indirectly. So, is it that Lafley is getting bolder taking a risk by making the largest ever acquisition in P&G's history. The work cultures of both the companies ought to be similar to avoid future problems.
In simple words when a new owner comes, things do change; they are bound to change, and some of these changes either suit or don't suit the way of working. This is quite natural and when it does not suit one's working environment, one's performance and productivity is bound to come down drastically. At this juncture, the best an acquiring firm can do is to come up with some distinctive steps to create synergy with the other firm.