The owner of Clairol and Cover Girl just got engaged to the company that made its name more than a century ago selling safety razors to...
NEW YORK — The owner of Clairol and Cover Girl just got engaged to the company that made its name more than a century ago selling safety razors to men.
Together, Procter & Gamble (P&G) and Gillette hope they can do what they couldn’t do as well on their own: ramp up sales in developing markets such as China and Eastern Europe, bring new products to market more quickly and learn from each other’s strengths.
P&G has long been known as a champion marketer, with top executives working their way up the ladder as managers for one of the company’s hundreds of brands, which include Pampers, Crest, Tide and Head & Shoulders. Many products are marketed primarily to women.
Gillette, on the other hand, has a smaller group of brands, chiefly its rapidly expanding and highly profitable line of razors, Braun electric shavers and Oral-B toothbrushes. But it lacks the heft and breadth of a marketing-and-sales colossus such as P&G.
Most Read Stories
- Family of girl snatched by sea lion lambasted for ‘reckless behavior’ WATCH
- I didn’t get it right with Seahawks’ Michael Bennett, and I apologize
- Blast at Ariana Grande concert in England kills 19 people VIEW
- What drivers can and cannot do under Washington state's new distracted-driving law
- Search suspended for Issaquah teen missing in Snoqualmie River
As they seek to broaden their horizons to the fast-growth opportunities in such places as Turkey, the Middle East and Russia, the companies hope Gillette will fill out the P&G portfolio of products and get them to market more quickly, and in more places, all at once.
“We believe we can bring these companies together and create a juggernaut,” Gillette Chief Executive James Kilts told analysts yesterday. Kilts will become vice chairman of P&G and join its board, and he has agreed to stay on for at least a year to see through the integration of the companies.
THE COMPANIES: Founded in 1901 by King Camp Gillette, inventor of the safety razor, Gillette, based in Boston, makes blades, razors and shaving products, as well as batteries and toothbrushes.
Cincinnati-based Procter & Gamble is the No. 1 U.S. manufacturer of consumer goods ranging from Pampers diapers to Head & Shoulders shampoo and Iams pet food. The company also produces soap operas, including “Guiding Light.”
INCOME: In its most recent quarterly report, Gillette earned $475 million or 47 cents a share on sales of $2.69 billion. P&G earned $2.04 billion, or 74 cents a share on sales of $14.45 billion.
EMPLOYEES: Gillette employs nearly 30,000 people globally, while P&G has nearly 110,000 employees worldwide. Roughly 6,000 jobs will be eliminated after the merger.
Source: The Associated Press
“I’m a great believer in scale,” Kilts said. He said he would rather lead a consolidation in consumer-products makers than “get stuck with the leftovers.”
Still, the companies have plenty of work cut out for them, and mergers solely for the sake of gaining scale don’t necessarily work. P&G has dropped several businesses, including Vidal Sassoon, Jif peanut butter and Crisco. Gillette is facing doubts from investors about its Duracell line, which they said hasn’t lived up to expectations.
P&G also is splashing out a big price for Gillette: $57 billion. But the companies said that savings from combining back-room operations and new growth opportunities will add up to at least $14 billion, making the merger profitable in the third year.
As in many mergers, one of the areas of savings will come from eliminating jobs. The companies estimated this combination would result in 6,000 jobs being cut, or about 4 percent of the work force of 140,000 in the combined company.
Part of the merger is about gaining additional clout with an increasingly strong stable of superpower retailers such as Wal-Mart and Costco Wholesale, which have become far more powerful in recent years. The larger company could also gain leverage with big media companies from whom it buys large amounts of advertising.
But another key element is combining technological expertise in inventing products, said Steffen Lauster, a partner in the consumer-products division of Booz Allen Hamilton, a management-consulting firm.
“P&G is very much structured around brands in which they can make a difference with innovation and technology,” Lauster said. “Gillette fits perfectly; it’s a technology-based business in which they can add value.”
The proposed merger, if it meets shareholder and regulatory approval, would create a behemoth with more than $60 billion in revenues that would eclipse Unilever, the maker of Dove soap and Lipton tea, as the world’s largest consumer-products company.
A.G. Lafley, P&G’s chief executive, said the companies had relatively little overlap, and he did not expect that regulators would force them to sell off many properties. At the same time, he acknowledged concerns from analysts that some weaker product lines might be jettisoned.
“You have to weed the garden every spring, and we don’t wait for spring,” Lafley said.
The deal would be the largest U.S. merger since JP Morgan Chase’s $58 billion acquisition of Bank One last year and marks the latest signs of vitality in the merger arena.
In December, health-care-products maker Johnson & Johnson agreed to buy Guidant for $25 billion, and cellphone giant Sprint agreed to buy Nextel for $35 billion. This week, reports emerged that SBC is in talks to buy AT&T.
Investor Warren Buffett, whose 9.7 percent stake in Gillette makes him the company’s largest shareholder, called the combination “a dream deal” in a video presentation to analysts and said he expected to increase his stake.
Cincinnati-based P&G will pay 0.975 of a P&G share for each share of Gillette. Based on P&G’s closing price of $55.32 a share Thursday, the deal values Boston-based Gillette at about $54 a share, an 18 percent premium over its closing price.
Gillette shares soared $5.92, or 13 percent, to close at $51.60 in heavy trading yesterday, while P&G shares fell $1.17, or 2.1 percent, to close at $54.15.