Procter & Gamble strikes $57 billion deal for Gillette

Friday, January 28th 2005, 8:28 am
By: News On 6

NEW YORK (AP) _ The Procter & Gamble Co. is buying shaver and battery maker Gillette Co. for $57 billion in a deal that would create the world's largest consumer-products company.

If regulators approve the deal announced early Friday, P&G will add Duracell battery, Right Guard deodorant and Gillette razors to its collection of more than 300 consumer brands, including Head and Shoulders shampoo, Pringles, Crest toothpaste and Bounty paper towels. The acquisition would vault P&G's sales to more than $60 billion annually.

Consumer products suppliers have been facing pressure from Wal-Mart Stores Inc., the world's biggest retailer, and other retailers to keep their product costs low.

Friday's deal is expected to help P&G and Gillette cut their combined costs but will also mean the elimination of about 6,000 jobs, which is about 4 percent of the combined work force of about 140,000, most of them by eliminating managerial overlaps and consolidating operations.

``We believe we can bring these companies together and create a juggernaut,'' Gillette Chief Executive James M. Kilts told analysts in a briefing on the deal Friday morning.

Kilts, who has agreed to stay on for at least a year to lead the integration of Gillette with P&G, said the combination would provide Gillette with opportunities to sell their products in developing markets including China and East Europe.

``I'm a great believer in scale,'' Kilts said. He said he would rather lead the consolidation in consumer products companies than ``get stuck with the leftovers.''

Both companies' boards unanimously approved the deal on Thursday.

Famed investor Warren Buffett's vehicle, Berkshire Hathaway Inc., owns 9.7 percent of Gillette, or about 96 million shares _ a stake equivalent to 93.6 million P&G shares. Buffet, Gillette's largest single shareholder, called the combination ``a dream deal'' and said he plans to buy another 6.4 million P&G shares to reach 100 million by late this year when the sale is expected to close.

Cincinnati-based P&G will pay 0.975 of P&G share for each share of Gillette. Based on P&G's closing price of $55.32 per share Thursday, the deal values Boston-based Gillette at about $54 per share _ an 18 percent premium over its closing price.

P&G also plans to buy back $18 billion to $22 billion of its stock during the next year to 18 months. As a result, the deal would ultimately be financed through about 60 percent stock and 40 percent cash.

``Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit,'' P&G Chief Executive A.G. Lafley said in a statement.

Kilts will become vice chairman of P&G and join its board.

The deal is a bold move by Lafley, who led the company out of dark times in 2000. Moving too fast on a restructuring plan implemented by Chief Executive Durk Jager, the company posted several disappointing quarters and its stock lost more than half its value in 2000.

Lafley replaced Jager in June 2000, slowed the pace of change and got the company back on solid footing. Its stock has risen by nearly one-third since 2003, with its strong global brands powering consistent sales growth.

As it resumed growth, P&G started acquiring brands that fit with its strategy _ Germany's Wella AG hair care line in 2003 for $5.7 billion was the biggest acquisition until Thursday. P&G also acquired Clairol for its hair-care lines and Iams Co. for its pet foods.

The company reported strong quarterly earnings on Thursday, including a 12 percent jump in net income to $2.04 billion, or 74 cents per share, up from $1.8 billion and 65 cents per share in the same period a year ago.

P&G's sales increased 7 percent to $14.45 billion in the quarter.

Gillette also has reported strong earnings since Kilts joined the company in 2001. It has moved to buoy its premium-line shaving and dental care products and sales of Duracell batteries.

In its most recent quarter, Gillette reported income of $475 million, up from $416 million, as more consumers traded up to its pricier M3Power razor and the series of hurricanes in the South boosted battery sales. Gillette also sells Oral B dental care products.