PROCTER & GAMBLE (P&G)

INTRODUCTION 

PROCTER & GAMBLE (P&G) 

Procter & Gamble Co. (P&G) was founded by William Procter and James Gamble on October  31, 1837, as a simple soap and candle company. It is based in Cincinnati, Ohio, USA. Today,  it is the world’s largest consumer goods company and home to iconic, trusted brands that make  life a little bit easier in small, significant, meaningful ways.1.  

P&G’s history in India started in 1985 with the acquisition of RHL. Today, its portfolio  comprises 13 leading and trusted brands. Most of its products, which are sold in India, are  manufactured locally, i.e., in India itself. It endeavors to contribute to the growth of the  economy by creating direct and indirect employment through its operations in India.  

P&G is a conglomerate company, and its 65 individual brands are organized into 10 product  categories as follows: 

Gillette Company  

The Gillette Company and brand originated from the late 19th century in Boston,  Massachusetts, USA, when salesman and inventor King Camp Gillette came up with the idea  of a safety razor that used disposable blades. Today’s Gillette products are the result of 100  years of inspiration and innovation, and they are not done yet with making their products better. 

It is the brand of men’s and women’s safety razors and the other copper top batteries. It sells  the following products under the following product ranges: 

THE DEAL: ACQUISITION 

The pre-acquisition process of the companies started at the end of 2004 and was completed in  2005. On October 1, 2005, P&G acquired Gillette Company for $57 billion. It is one of its  largest acquisitions in its history. This deal combined some of the world’s top brands.  

P&G acquired 100% of Gillette for $57 billion. This amount represented the 18% market value  of the Gillette. This acquisition resulted in the world’s largest consumer products company  displacing Unilever. The deal was structured as a 60% stock and 40% cash deal, while it was  purely a stock swap on paper.2 

P&G paid 0.975 for each share of Gillette, valuing the acquisition at a 20% premium to the  shareholders of the Gillette Co.  

With this acquisition, P&G added Gillette shaving products, Right Guard deodorant, and  Duracell batteries to its already existing conglomerate portfolio. This acquisition is the combination of two best-in-class consumer products companies, at a time when they are both  operating from a position of strength.  

SYNERGIES OF THE ACQUISITION 

Since 2000, P&G has started to expand into the personal care product market, making this  acquisition fit its corporate strategy by widening the range of the company’s product line with  similar products.  

1. Increase the Market Share – Both Companies’ Market share has increased as now  both companies together have many products, diversification, and a larger size of  the new one. 
2. Geographical Expansion – P&G is an established brand in the world, especially in  North America & Europe, whereas Gillette was already capturing markets in  developing countries in Asia and Latin America.  

iii. Expansion into new products – Gillette added men’s grooming products, batteries  to the already versatile products portfolio of the P&G business.  

1. Access to technology – Both companies got access to each other’s exceptional  operational, research & development, manufacturing, and other technologies. It  reduced the company’s need for substitution.  
2. Building New Industries – With the acquired new capital, P&G became capable of  setting up industries and expanding its market worldwide.  

STATUS OF THE COMPANY 

PRE ACQUISTION  

Procter & Gamble: 

In 2004, the company’s profits reached 6.4 billion dollars of the total sales of 51.4 billion  dollars with 111,000 employees in 80 countries. At the time of acquisition, the share price of  

Gillette was $45, while the share price of P&G was $55.04.

Gillette Co. 

At the time of Acquisition, in 2004, the company’s sales amounted to 10.3 Billion Dollars and  profits at 2.3 Billion Dollars with 30,000 employees. The company has its products present in  more than 200 countries.  

POST ACQUISITION 

After the Acquisition, Gillette Company and brand had become a completely owned entity of  P&G. Despite the fact that Gillette was smaller in size compared to P&G, it was acquired by  P&G for a 20% premium of its market value. P&G paid 0.975 over the share value and hence  $53.66 for each share of Gillette; therefore, each share of Gillette received a premium of $ 8.66. 

After the Acquisition, P&G had 21 billion-dollar brands with a market capitalization of $200 billion. This acquisition enabled P&G to gain a significant market advantage and cope with the competition dynamically through a horizontal integration strategy. 

The above are the results of the acquired Gillette Company for the nine months, i.e., from October 1, 2005, through June 30, 2006.  

Post-Acquisition P&G has been holding the market share in Blades and Razors on a global  basis, where the market share is approximately 72%. Post the deal, the Sales of Blades and  razors increased 1% and Sales for Duracell & Braun were $ 2.92 billion, in line comparable  prior year. The Net Sales of Gillette amounted to $ 6.4 billion of the total sales of P&G. 

CURRENT STATUS 

Currently, P&G has its business in 10 categories and 5 major segments, namely Fabric & Home  care, Baby, Feminine & Family Care, Beauty Care, Health Care, and Grooming Care. From  the below, it can be said that Grooming care (mainly comprises Gillette) of the P&G  contributed towards its 8% ($ 6,587 billion) of Total Net Sales of P&G, which is $ 80,187  billion, and 10% ($1 490 billion) of the company’s Net earnings in FY2022.  

CONCLUSION 

Corporate restructuring is a process of reorganizing a company’s operations, finances,  ownership structure, or other aspects in order to improve the company’s overall performance,  market position, and profitability. This may involve merging or selling off parts of the business,  restructuring debt, changing the organizational structure, or divesting assets. Restructuring is  often used by companies that are in financial distress or facing competitive pressures. 

The Acquisition of a company occurs when a company buys and incorporates another  company. The Acquisition can be done through purchasing the assets of a company or  purchasing the stock of one company by another company. The acquisition can be of two types:  

1. Friendly Acquisition  
2. Hostile Acquisitions also Takeovers 

Here, the acquisition of Gillette by P&G was a friendly acquisition. This acquisition was  consented to by more than 98% of the shareholders of the Gillette Company.  

TYPE OF ACQUISITION: CONGLOMERATE ACQUISITION 

This type of Acquisition happens between companies that deal with totally unrelated products  or related products. In this case, P& G already have women’s grooming products, but this  acquisition helped them to extend their products and marketplace into Men’s grooming  products.  

THEORY APPLICABLE: DIVERSIFICATION THEORY  

Diversification is a key factor in corporate restructuring analysis. The diversification theory  suggests that a company should go for acquisition only if the combined company can achieve  greater diversification benefits than the two companies could achieve separately. The  companies often seek to acquire others to expand their customer base or product offerings. This  can help them reduce risk by diversifying their business. Additionally, companies may also  gain access to new technology or markets.  

ADVANTAGES OF THE ACQUISITION 

Gillette and P&G have similar cultures and complementary core strengths in branding,  innovation, scale, and go-to-market capabilities, thus making it a terrific fit. For P&G, this  acquisition allowed it to leapfrog Unilever globally and Hindustan Unilever in India as the  world’s largest consumer products company and combine the two companies with two of the  strongest track records of top-line and profit growth in the industry. This deal: 

• Brought down the advertising and media costs of P&G owing to greater bargaining  power. 
• By broadening the product line, it was enabled to bring new products into the market  more quickly.  
• Increased the geographical reach and competition as this acquisition united P&G with  some world’s leading and finest products & brands.  
• Increased diversification.  
• Access to existing knowledge and management of the target company. 
• Helped in avoiding the excess competition.  

DISADVANTAGES OF THE ACQUISITION 

• Post-acquisition P&G faced difficulties related to the diffusion of change within the  operation, affecting its internal operations as it had to manage & keep the entire staff  of Gillette.  
• It was forced to annex the weakest products and cover its debts. 
• There was an overlap of some brands or products of both companies. For example,  Crest toothpaste from P&G and Oral-B toothpaste.  

In conclusion, there is no such perfect recipe for a successful merger & acquisition. The  purpose of this acquisition was to create a stronger, more competitive company that can better  serve customers and drive growth. The two companies have complementary strengths, and this  combination will create a company with a more diversified portfolio and ample resources to  invest in innovation. 

This acquisition by P&G was a successful one, as this gave P&G more control over the shelf  space globally. It also added premium brands of the Gillette Co. to its already existing 300  consumer brands. Most importantly, this acquisition enabled P&G to spread its business into  developing countries like India, Brazil, China, etc., as Gillette was already a strong brand in  these countries. Most importantly, P&G got access to more resources to enable intensive  collaborative supply chain initiatives in a more cost-effective way as its which lies on women’s  personal care products is now combined with Gillette’s core strength, men’s grooming and  personal care products. This acquisition was a successful one as it rebounded Gillette’s sales, and the two companies have been able to share costs and technologies. 

Reference(S):

1 https://www.pgcareers.com/about us#:~:text=P%26G%20was%20founded%20over%20180,in%20small%20but%20meaningful%20ways.

2 UKEssays. November 2018. Case Study Procter Ang Gamble Merger With Gillette Marketing Essay. [online].  Available from: https://www.ukessays.com/essays/marketing/case-study-procter-ang-gamble-merger-with gillette-marketing-essay.php?vref=1 [Accessed 5 February 2023].