Procter & Gamble will acquire Gillette in a stock transaction valued at $57 bil., creating a consumer products powerhouse with combined sales of over $60 bil. and a portfolio that includes 21 billion-dollar brands, the two firms announced at a news conference in New York City Jan. 28.

The deal will combine Gillette blades, razors and personal care, Oral B and Rembrandt oral care, Right Guard , Soft & Dri and Dry Idea deodorants, Braun shavers and Duracell batteries with P&G's Crest , Old Spice , Secret , Olay and Cover Girl brands. Gillette brings five billion-dollar brands to P&G's existing 16.

The move will accelerate growth opportunities at P&G by leveraging core strengths in branding, marketing, go-to-market capability and innovation, according to Chairman, President and CEO AG Lafley. The transaction will result in synergies of $14 bil.-$16 bil. (see ¹ Also see "P&G/Gillette Combination To Yield Synergies Of $14 Bil.-$16 Bil." - HBW Insight, 31 January, 2005. ).

"The addition of Gillette's brands accelerates the evolution of Procter & Gamble's portfolio in the faster growing, higher margin and more asset efficient health, personal care and beauty businesses," Lafley stated. The exec implemented the strategy to enhance P&G's health and beauty care lineup after taking the helm in 2000, adding Clairol in 2001 and Wella in 2003.

Health, beauty and personal care businesses will now represent 50% of the company's portfolio. P&G brands will be the market leader in categories representing two-thirds of total company sales, Lafley added.

The deal is expected to close in the fall after approval by shareholders and regulators. P&G could be required to divest some brands before the acquisition receives regulatory clearance, with the biggest overlap stemming from oral care and deodorants.

Gillette comes to P&G in a strong, healthy financial position after undergoing a turnaround the past four years led by CEO James Kilts, who will now oversee the integration process and serve as vice chairman on P&G's board of directors.

Over the last year, Gillette's share price has appreciated 20%, Kilts reported, while sales for the first nine months of 2004 increased 11%, net income grew 26% and earnings per share jumped 27%. The recent introduction of M3 Power , the first battery-powered wet shaving system, is already on track to become a half-billion dollar brand, he added.

"There are no two consumer products companies in the world with a better alignment of brands, markets and philosophies," Kilts stated. "The combination will create the best consumer products company in the world."

Gillette's well-known, world class brands have made the company an attractive takeover target, but it was Gillette that approached P&G this round, coming to the firm a few months back to discuss a merger opportunity.

Kilts said the company recognized there would be "clear benefits in combining Gillette with another industry leader" because the combined entity would have a stronger leadership position that would be more innovative for consumers and more responsive to retail customers. The combination will better position the firms to face increased pressure from giant retailers like Wal-Mart.

The two firms offer complementary innovation, marketing and retail strategies, Lafley said, noting P&G and Gillette together have brought to market more than half of the most successful consumer branded product initiatives in the past three years.

The acquisition gives P&G entry into the blades and razors category and provides the company an opportunity to extend its skin care and tooth whitening technologies to brands such as Gillette personal care, Rembrandt and Oral B.

The two firms will connect on common innovation areas, such as oral and personal care, Lafley said. The company will leverage Gillette's complementary consumer research, since P&G's expertise is in marketing to women, while Gillette's strengths are in marketing to men and consumer trade up, he noted.

He cited women's hair removal as one category that will benefit from combined innovation. The $10 bil. category is projected to grow 8% annually for the next five years, he said, noting that by combining Gillette's and P&G's brands, consumer knowledge and marketing, the company will be better able to develop products that "delight" women.

There also are opportunities to leverage P&G's strong customer business development approach with Gillette's outstanding execution at store level, and to target growth of Gillette's brands in developing markets, he said. P&G's scale in developing markets is about five times that of Gillette's, which will allow Gillette to achieve deeper penetration in markets like China, Russia, Turkey and Mexico, the exec said.

P&G $57 Bil. Gillette Acquisition Creates 21 Billion-Dollar Brand Portfolio

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