Proctor and Gambles Takeover of Gillette - Case Study Example

 Proctor and Gambles takeover of Gillette: A case study Understanding the extraordinary merger between Proctor and Gambles and Gillette is an important modern business approach. The case being studied is based on the paper by David P. Stowell titled, The Best Deal Gillette Could Get, written for the Kellogg School of Management, Northwestern University. James Kilts was the CEO of Gillette when the merger was accomplished, he was known as the “Razor Boss of Boston,” his alternate with Proctor & Gambles was Alan Lafley. The $57 Billion dollar acquisition of Gillette by P&G was accomplished at the behest of these gentlemen. Gillette had been a standalone company for 104 years leading up to this merger, it was profitable though in the recent years it had suffered setbacks and with Kilts taking the helm cuts had been made and profitability had been restored. Kilts needed to ensure that the long term profitability of Gillette continued, with three well-known brands in its portfolio it was at a disadvantage to companies like P&G which had approximately 150 major brands. To ensure sustainability and future profitability for the shareholders of Gillette he approached the merger with Lafley and P&G in 2002 originally and then subsequently in 2004. The opportunities resulting from this merger included solid return for current shareholders as well as future profitability for P&G and Gillette as a singular business under the P&G name. Unfortunately the problems included public reaction which was seen in media attacks following the merger in 2005 as well as the state of Massachusetts. Additionally the possibility of losing money for shareholders if the deal turned out badly was an ever present threat. However the opportunities for profit and a mutually beneficial future for both companies outweighed the potential problems. Between both companies there were defined market shares; P&G did not really hold a market share in razors, toothbrushes and batteries though it did maintain a large market share in other similar products that would allow it to combine the three Gillette brands into its portfolio and profit. Gillette was more adept at marketing to men, while P&G was more adept at marketing to women. Additionally were the burgeoning foreign markets and the need for increased market shares in those areas. P&G is skilled in marketing and maintaining a significant presence in China while Gillette maintained large market shares in India and Brazil. With this evidence supporting the net benefit of a merger of interests there does not seem to be much that could improve that. However, Kilts and Lafley both understood the net gain of a merger in the ability to negotiate with suppliers to a greater degree and distributors such as Wal-Mart. This added benefit made the decision to merge extremely difficult to pass up and the merger was accomplished in January of 2005. Were there any alternatives to this course of action, this question once you understand the benefits inherent with a merger of this size seems redundant. However, as we have the benefit of hindsight and Kilts and Lafley did not at the time the answer would be no. Gillette with Kilts at the helm had already slashed and burned the profit line back up, and with increased marketing was not seeing truly significant gains though the market share held was being maintained. P&G needed to seize the opportunity to expand into foreign markets that they had previously not held a large presence in. The easiest approach in judging the alternatives would be to look at their present profitability and ability to expand into previously closed markets. The cost to begin campaigning publicly and privately for this expansion would likely have been more prohibitive in the long term then the merger itself. By merging the mutual benefits included an already established market share being added to both company’s portfolios and the abilities of both companies being combined. The most mutually beneficial course of action then would be to pursue the merger and to work on the specifics of the merger, as well as type of merger being accomplished. Three possible acquisition types all cash, all stock or blended exist as possibilities. For this deal a modified all stock deal was offered and accepted. By using a modified stock deal the shareholders could see a profit sooner without the threat of capital gains taxes being applied to stock sales. While this approach is not always the most beneficial, as it could affect the company’s credit ratings fortunately this was not the case. Allowing the shareholders to cash in their newly acquired P&G stocks with a company buyback avoided the tax issues and offered immediate remonstration if that was the desire. I believe that the approach taken benefited both the shareholders and the companies mutually at the time. By looking at a 2010 article in Advertising Age we see that this extremely large gamble had not quite paid off yet. Though the company has increased its market share and stock has risen 12% it is still not where it originally had planned. Part of this may be due to the recession, and the massive unemployment currently on the books. Unemployed people do not shave as much as employed. (Neff, 2010) Additionally in an article dated January, 2011 we see a push by P&G to expand its Gillette razor line in India, with a forecasted share rise of 55% in the coming years. (Team, 2011) If I were to attempt to negotiate this merger again with the knowledge gained I would likely approach it the same way as before. The initial benefits to Gillette and its shareholders were astronomical and the mutual benefit will show itself shortly with the numerous new approaches being taken by P&G. This case taught me that an ethical approach such as the one taken by Kilts and Lafley with their full disclosure to the shareholders and board regarding the decisions made is beneficial and can serve to reduce the amount of public furor over the merger. It seems clear that one should not be afraid to take chances at that level either, and as a result at any level. This merger was completed and was a large gamble for both companies. However, while it may not have paid off completely yet it is showing promise and retaining profitability. As it stands currently I do not have any previous experiences that could relate to this, other than the ethical approaches taken. Obviously one should be ethical in their approaches whether it be business or personal in nature. References Grogan, C., & Stowell, D. (2006). The best deal Gillette could get? Proctor & Gambles acquisition of Gillette. Northwestern University, IL: Kellogg School of Management. Neff, J. (February 15, 2010). Why P&G's $57 Billion Bet on Gillette Hasn't Paid off Big -- Yet. Retrieved from http://adage.com/article/news/marketing-p-g-s-57-billion-bet-gillette-years/142116/ Team, T. (January 17th, 2011). P&G Targeting Gillette Market Share in India. Retrieved from http://www.trefis.com/stock/pg/articles/33992/pg-targeting-gillette-market-share-in-india/2011-01-17 Read More