Procter & Gamble buys Gillette
Consumer products giant Procter & Gamble made a major move to extend its personal care product line with the announced acquisition of the Gillette Company. The stock deal is valued at $54 billion, and will push P&G's revenue beyond that of archrival Unilever. The deal needs antitrust approval, but there is very little overlap in the two companies' product lines, so little trouble is anticipated.
Why the deal, which, as usual, Wall Street analysts declared overpriced? Several reasons:
- The Gillette product line (mostly men's grooming products) complements the P&G line in that area (mostly women's products from Clairol to Tampax). The overlap occurs only in deodorants, teeth whiteners, and toothbrushes. The deal won't take any major dropping of assets.
- The distribution and marketing issues for most of the two companies' products are very similar. They are generally one aisle over from each other in the same stores worldwide. They use the same mix of advertising vehicles.
- A bigger company will have more leverage against the encroachments of ever-bigger retail chains, most notably Wal-Mart, but also the various supermarket and drug retailers. That won't change the balance of power radically, but it will allow P&G with its increased number of essential brands increased by several, to be able to speak with a little more authority on pricing and shelf placement.
- The new company becomes even a more dominant advertiser, allowing it more leverage with agencies and with media outlets.
- While the new company won't out rivals Unilever or Colgate-Palmolive forom the shelves, it will keep smaller rivals at bay, a continuation of current policy.
- Each of the products lines will gain advantages in emerging markets. P&G is strong in Japan and China, while Gillette is better established in Brazil and India.
As usual, the expectation is that this deal will trigger even more consolidation in it market. According to a Wall Street Journal story ("P&G Agrees to Buy Gillette
In a $54 Billion Stock Deal", 1/28/2005)
A P&G -Gillette combination could be a transformative deal in the consumer-products industry, that many analysts have long thought needs a shakeup.
"[U]ltimately it is really positive," said Floyd Greenwood, founder of independent New York research firm Greenwood Research, of the deal. Given the pricing pressure from retailers, the consumer-products industry could benefit from consolidation, he said.
To our thinking this is crazy thinking. The consumer products segments already well consolidated, in areas like shaving products, shampoo, dental care, and soap there are often only two major players to choose from, though a number of brands.
P&G has been moving ever more into the personal care product area (along with household care) and away from some side industries. In 2000, the company bough hair products company Clairol; in 2003, German hair care company Wella. At the same time it has sold off food assets like Crisco and Jif peanut butter to J. M. Smucker's, beverage Sunny Delight to an equity firm, and backed out of a joint European snack venture with Pepsico. Remaining food products like Pringles snacks and Folgers coffee would be logical candidates for sell-off, along with perhaps P&G miscellaneous set of eight or so prescription drugs. Gillette side ventures Braun mini-appliances and Duracell batteries, might also be likely to be sold off.
