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Deal Would Create World's Largest Consumer Products Company

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CINCINNATI ( -- Procter & Gamble Co. announced early today it plans to acquire Gillette Co. for $57 billion in stock in a deal that would allow it to leapfrog Unilever 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 in recent years.
The deal would make P&G the world's largest consumer products company and put it ahead of GM as the top U.S. advertising spender.

WPP Group
The deal would also give P&G, which would become a $60 billion global powerhouse, at least temporarily a far larger presence within WPP Group, whose media network MindShare handles more than $900 million in Gillette media buying globally. Omnicom Group's BBDO Worldwide handles the bulk of Gillette's creative duties in the U.S. and globally. P&G, which does most of its $5.5 billion in marketing spending through Publicis Groupe, gained its first major entry into WPP with the holding company's recent acquisition of Grey Global Group.

P&G spokespeople could not immediately be reached regarding plans for agency assignments. The deal isn't expected to close for six to nine months.

Interpublic Group of Cos.' Lowe and Havas' Arnold also handle creative duties for Gillette. P&G's roster includes Publicis' eponymous Publicis Worldwide, Saatchi & Saatchi, Leo Burnett and Kaplan Thaler Group, and Aegis Group's Carat.

P&G would top GM
Adding Gillette's more than $200 million in U.S. ad spending to the mix could also make P&G, long near the top of U.S. advertising spenders, the clear leader over General Motors Corp, the top U.S. spender. In a meeting with analysts this morning, P&G Chief Financial Officer Clayton Daley said media buying efficiencies were one of the factors that made the deal appealing.

P&G will slash around 6,000 jobs from a combined global workforce of 140,000 should the deal close as expected, with cuts coming both from Boston-based Gillette and Cincinnati-based P&G, Mr. Daley said.

The deal, P&G's biggest ever, concludes years of interest by P&G in Gillette's dominant shaving business, which has a global market share of more than 70%, exceeding the strength even of P&G's most dominant global brands, the Tide and Ariel detergent tandem. P&G had first approached Gillette about an acquisition in the late 1990s, according to executives familiar with the matter. The deal adds such billion-dollar global brands as Gillette, Duracell and Right Guard to P&G's existing 16 to create a stable of 21 billion-dollar brands.

P&G's transformation
It's the latest of several major acquisitions by P&G under Chairman-CEO A.G. Lafley in recent years, which have transformed the company from a heavy emphasis on household products to an overwhelming focus on beauty and personal care. P&G acquired Clairol from Bristol-Myers Squibb in 2001 and Germany's Wella two years later; with the Gillette deal Mr. Lafley is on a pace of making a major purchase every 18 to 24 months.

Buying Gillette at a 17.6% premium to yesterday's closing price of $45.85 creates pressure for P&G to deliver stronger top-line growth. In the meeting with analysts in New York this morning, Mr. Lafley said Gillette's mix of faster-growing businesses and expected innovation synergies is leading P&G to up its forecast for future top-line growth from the current 4% to 6% to 5% to 7%. But a more conservative Gillette chairman-CEO, James Kilts, said his company's revenue growth projection remains 3% to 5%.

Top-line results issue
With the exception of the 1999 Iams pet food acquisition, P&G's acquisitions in recent years, including Tambrands, Clairol and Wella, have all delivered disappointing top-line results, said Deutsche Bank analyst William Schmitz during the meeting. He asked why the Gillette deal would be different.

"World-class assets and world-class momentum right now," answered Mr. Lafley, adding that the Tampax business is now showing rekindled growth and that parts of the Clairol and Wella businesses -- including Herbal Essences hair care and fine fragrances -- are showing strong growth globally.

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