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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Excerpts Contd...

The Synergies

Both the companies expected the merger to bring tremendous synergies. According to Lafley, "This combination of two best-in-class companies creates a stronger brand portfolio, opportunities for even more innovation, faster sales growth, and cost savings." Analysts felt that both scale and focus were important in this industry and P&G had attempted to gain both with this acquisition.

In the words of Lafley, "P&G and Gillette can grow together at levels that neither could sustain on its own. The reason is that consumer products is, in the end, a scale business. The more scale a company can create, the more opportunities there are to grow margins and invest in brand innovation."...

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Integration Issues

Kilts would be the vice chairman of P&G and would lead the integration for a year. The merger would result in around 6,000 job cuts equivalent to 4% of the two companies' combined workforce of 140,000. Most of these reductions would come from eliminating management overlaps and consolidation of business support functions...

Outlook

Some analysts felt that the P&G-Gillette merger was a defensive move by P&G to check the growing power of retailers. "Retail had long been a struggle for power between vendors and retailers and lately retailers have had the upper hand," said Robert Spector, a retail historian based in Seattle. He added, "Trying to raise prices and improve margins is very, very hard because of the Wal-Mart effect. This deal is about size versus size." However, other analysts disagreed, saying it was an aggressive move for achieving growth rather than a balancing act. In the words of Jason Gere of A.G. Edwards', a brokerage firm,

"While some view the deal as trying to shift the balance of power with Wal-Mart, we see it more about staying ahead of peers and enhancing Wal-Mart relationship."...

Exhibits

Exhibit I: A Note on Gillette's Competitiors
Exhibit II: P&G Financial Statements Summary
Exhibit III: P&G Product Segments and Revenues
Exhibit IV: New Restructured Segments
Exhibit V: Gillette Financial Statements Summary
Exhibit VI: Gillette Product Segments and Revenues
Exhibit VII: Consumer Goods Industry Trends for 2010


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