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Procter & Gamble Acquisition of Gillette

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by

Josh Little

on 2 December 2013

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Transcript of Procter & Gamble Acquisition of Gillette

Conclusion
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.
Procter & Gamble Acquisition of Gillette
Background
Gillette
CEO - Alan G. Lafley
Procter & Gamble
Details of the Transaction
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
Antitrust Issues
Huge Market Power
Multinational companies = U.S.
and
European scrutiny
Overlapping brands were the main concern
Divestitures
Divestitures
Pre-Merger (Projections):
Post-Merger (Results):
420 Million
Undisclosed
75 million
By: Josh Little, Ken Mahler, Bryan Roy, Tyler Wilson
Outline
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

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
Stategic Benefits
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
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
Economic Benefits
Procter & Gamble
-Founded 1837
-Multinational Corporation
-Operates in 80 countries
-110,000 employees
Gillette
-Founded 1901
-Multinational Corporation
-Operates in 14 countries
-29,000 employees
Synergies
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"

Why Gillette?
Gillette Generates High Profits within Mens Grooming Industry
Gillettes value brand Image and equity
Merger would create the largest consumer enterprise
Economic Benefits
Who Gained From the Merger
Warren Buffett
$4.4 billion increase in his 9% share
James Kilts
$165 million
Gillette executives
$460 million
Financial Advisors
$30 million each
Diverse set of products:
-Crest
-Tide
-Head and Shoulders
-Olay
-Pampers
-Febreze
-Pringles
"Touching lives,
improving life"
Gillette's brands:
Gillette
Braun
Oral-B
Duracell
Right Guard
CEO - Jim Kilts
Post Merger
Global Gillette
Separate business unit until mid 2007
Dissolved and separated
-Beauty
-Grooming and household Care
The acquisiton would add about 20% to P&G's Sales
Companies Cost Savings estimated at around $14-16 billion
Comparison To Competition
Direct competitors outperforming
Valuation
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
Back on Track
Revenues are climbing

"Gillette, the best
a man can get"
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.
Full transcript