P&G and Gillette Merger

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Procter and Gamble and Gillette

The following sentiments written in January last year by Dan Barrows of Market Watch reinforce my thoughts on this merger, “Procter and Gamble’s $57 billion acquisition of Gillette not only created the world’s largest consumer goods company, it also created a global-size headache for both companies’ rivals.”

I have worked with Gillette, P&G and KAO, the Japanese version of a P&G, for several years. A year before the announced merger Gillette was already looking to find a partner to acquire them. I even arranged for the Japanese top management of KAO to meet with Gillette in Boston to see if the synergies between KAO and Gillette would work across the globe. KAO’s interest is to become more of a global player. Two years earlier KAO bought Jergens and Biore in an attempt to enter the US market in particular.

But Japan moves too slowly and cautiously and P&G was able to offer a more compelling deal for the Gillette shareholders. Besides the obvious financial pluses this deal makes tremendous sense from a marketing standpoint, now P&G can go head to head with Colgate in Oral care with Oral B and in shaving against Schick with Gillette”s shaving technological successes. I think the power of the two will give P&G considerable clout in the battle for shelf space as well

Dan Barrow’s article also pointed out the strategy behind the plan as viewed by CIBC World Markets analyst Joseph Altobello, “Besides creating what in our view would be pre-eminent consumer products company in believe it would underscore our thesis that suppliers need to either ‘get big or get focused’ in order to maintain leverage in an industry marked by retailer consolidation,”

A merger of P&G and Gillette not only bring Colgate’s two biggest direct competitors together under one corporate umbrella, it also combines their already considerable advertising, marketing and research and development resources and talent.

Moreover, P&G now will expand into new product categories in which it currently does not compete: Gillette owns the premium razor and blade brand, and Duracell, the premier battery brand. P&G would also add Gillette’s number-one oral care brand, Oral B — a direct strike at Colgate’s own oral care business.

Those product and brand-portfolio expansions give P&G more leverage in its dealing with Wal-Mart and other retailers.

The acquisition also added about 20 percent to P&G’s sales virtually overnight in a business where sales growth is ever harder to come by and increasingly driven by volume gains and foreign currency exchange.

To put that in perspective, Gillette and Colgate each generate about $10 billion in annual revenue. The P&G acquisition of Gillette is comparable to adding the entirety of Colgate’s sales to P&G’s top line.

Additionally, P&G already the biggest consumer goods company in the U.S. takes that role in the global market, eclipsing Anglo-Dutch giant Unilever N.V.