Figuring that the world will always want to shave unwanted body hair, brush its teeth and avoid bad breath and body-odor, the proposed purchase of Gillette by Procter & Gamble has so far been widely welcomed by the markets and one of the world's shrewdest investors, Warren Buffett.
As news sank in that the Cincinnati-based giant P&G, with a market value of US$140 billion, was prepared to pay US$57 billion for the Boston-based maker of Braun razors, Oral-B products and Duracell batteries, few analysts uttered even mild words of caution about the difficulty of integrating the companies into what will be a consumer-products behemoth.
"This combination of two best-in-class consumer products companies, at a time when they are both operating from strength, is a unique opportunity," said P&G CEO AG Lafley in a prepared statement on Friday. Although the deal will need regulatory approval, this is unlikely to be a problem because there is little overlap in the companies' products. P&G, which employs 110,000 in about 80 countries, already has 16 brands; its purchase of Gillette will add five more.
In welcoming the deal, they said that Gillette's male-orientated strength in razors, such as the Mach 3, and deodorants, such as Right Guard, are fine complements to P&G's stable of women's brands, including Olay lotions, Tampax, and Cover Girl and Max Factor cosmetics. At the same time, life will become more difficult for competitors such as Colgate-Palmolive. Its toothpastes will now have to compete with P&G's Crest and Gillette's Oral B toothbrushes. P&G-Gillette will also control Secret, Sure, Old Spice and Right Guard deodorants, versus the Speed Stick of Colgate.
On Friday, when news of the deal broke, analysts suggested it gives the green light to other consumer giants, such as Coca-Cola, to consider equally massive deals. It is taken as given that becoming as big as possible is the only way to maintain any power over retailers.
In the age of Wal-Mart, suppliers cannot be too big or too powerful.
"P&G is getting one of the `true crown jewels' in all of consumer products," says CIBC World Markets analyst Joseph Altobello.
"Besides creating what would be the pre-eminent consumer products company in the world, we 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."
In terms of sheer bulk, P&G-Gillette will be hard to beat: The combined company will have annual sales of US$60.7 billion. The world's number one foodmaker, Switzerland-based Nestle SA, has annual revenue of US$65.4 billion. Unilever, the world's largest food and soap manufacturer, has US$48.25 billion. For P&G's Lafley, the deal far surpasses his 2003 purchase of German hair-care products company Wella for US$6.9 billion.
In financial terms, the deal falls marginally short of being the largest merger in the past year. The first and second prize, respectively, in that contest go to French drugmaker Sanofi-Synthelabo's purchase of Aventis for US$72.7 billion a year ago, and JP Morgan Chase & Co's acquisition of Bank One Corp, for US$58 billion. But it comes in ahead of Cingular Wireless's purchase of AT&T Wireless Services (US$46.7 billion) and Sprint Corp's agreement to buy Nextel Communications for US$35 billion.
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