Procter & Gamble Acquisition of Gillette

Who Gained From the Merger

Back on Track

Comparison To Competition

• Warren Buffett
• $4.4 billion increase in his 9% share
• James Kilts
• $165 million
• Gillette executives
• $460 million
• Financial Advisors
• $30 million each

Revenues are climbing

Direct competitors outperforming

Post Merger

Why Gillette?

Global Gillette

Separate business unit until mid 2007

• Gillette Generates High Profits within Mens Grooming Industry
• Gillettes value brand Image and equity
• Merger would create the largest consumer enterprise

Dissolved and separated

-Beauty

-Grooming and household Care

Shareholders

• Shareholders within Gillette instantly received 18% gains on their shares in the company.
• Shareholders in P&G initially lost 3% but overall gained 14% in the coming years.

Antitrust Issues

• Huge Market Power
• Multinational companies = U.S. and European scrutiny
• Overlapping brands were the main concern
• Divestitures

Divestitures

Undisclosed

420 Million

75 million

Gillette

Details of the Transaction

CEO - Jim Kilts

Gillette's brands:

Gillette

Braun

Oral-B

Duracell

Right Guard

Background

"Gillette, the best

a man can get"

• Stock for Stock
• Friendly - No defense tactics
• 57 Billion Dollar Deal
• 18% Goodwill (10.26 Billion)
• 0.975:1 P&G: Gillette Stock
• 962 Million new shares
• Stock buyback

Procter & Gamble

-Founded 1837

-Multinational Corporation

-Operates in 80 countries

-110,000 employees

Procter & Gamble

CEO - Alan G. Lafley

Diverse set of products:

-Crest

-Tide

-Head and Shoulders

-Olay

-Pampers

-Febreze

-Pringles

"Touching lives,

improving life"

Gillette

-Founded 1901

-Multinational Corporation

-Operates in 14 countries

-29,000 employees

Post-Merger (Results):

Conclusion

By: Josh Little, Ken Mahler, Bryan Roy, Tyler Wilson

• Difficult to determine the extent of established synergies
• Expense optimaztion most evident synergy developed
• Ed Shirley "dervived synergies have not produced expected results"
• This can be attributed to:

1) Ineffective synergy establishment

2) Valuation Bias

3) Poor Timing

4) Managerial Hubris

• Right merger at the Right Time
• Initially gains were noticed but eventually dissolved with the depression.
• however things are back on track now
• Positive earnings report
• Stock is doing well in the market
• The original predicitons of the growth of P&G are starting to be realized.

Valuation

Outline

• Uncertain of the valuation technique employed by P&G

• Most Common Valuation Techniques:
• Comparable Companies
• Comparable Transactions
• Present Value of Future Cash Flow Analysis

• Increase in combined value due to establishment of synergies

Backgrounds - Tyler Wilson

Motives and Benefits - Bryan Roy

Valuation - Ken Mahler

Synergies - Ken Mahler

Merger Details - Josh Little

Antitrust - Josh Little

Post-Merger - Tyler and Bryan

Conclusion - Bryan Roy

Pre-Merger (Projections):

Economic Benefits

• The acquisiton would add about 20% to P&G's Sales
• Companies Cost Savings estimated at around $14-16 billion

• Extremely similar firms

• Smooth transition into single entity

Types of synergies to be created:

1) Operational Synergies:

• Expense optimization (greater economies of scale)
• Product focus
• Distribution and greater market penatration

2) Financial Synergies:

• Improved Cost of Capital

3) Collusive Synergies:

• Aggregation of technologies (improved R&D)
• Marketing

Stategic Benefits

Synergies

• P&G needs to have presence within male grooming products
• Strengthens their influence on retailers
• Increase EOS in markets for each other
• Pressures the competition

• Value(New P&G) > Value (P&G) + Value(Gillette)

• Effects of synergies:

1) Increased revenues

2) Decreased in operating costs

3) Increased growth rate

• No Synergies = No Amalgamations

• The Economist: "A marriage made in

heaven - and in the bathroom"

Procter & Gamble Acquisition of Gillette

Economic Benefits