Who's next? P&G move may trigger frenzy

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Next up, Unilever and Colgate-Palmolive?

When Jim Kilts sold Nabisco to Altria Group's Kraft Foods in 2000, it stoked a feeding frenzy that dramatically consolidated food marketers. His sale of Gillette to Procter & Gamble Co. will likely do the same for the household and personal-care sectors.

"The competition needs to get their act together before Procter becomes so much more powerful and before available acquisitions become much less plentiful," said Gary Stibel, managing partner of the New England Consulting Group.

Top candidates to eat or be eaten include those competing most closely with the $65 billion-plus P&G-Gillette: Unilever, Kimberly-Clark Corp., Colgate-Palmolive Co. and Energizer Holdings. Unilever, industry analysts said, first needs to get its own house in order by naming a single CEO and unifying a stock now split between U.K. and Dutch holding companies, something they believe could happen as soon as next week.

Speculation regarding Colgate and Energizer helped send their share prices up 4.3% and 11.2%, respectively, since the P&G/Gillette deal was announced. The jump helped Colgate erase what was left of losses that followed its September decision to lower earnings guidance to support bigger marketing budgets.

constrained buying power

Holding back potential deals is a combination of relatively high prices for targets and relatively constrained buying power for such hunters as Unilever. At $57 billion, P&G proposes to pay more than five times sales and 17 times cash flow for Gillette-ratios as much as double what's normally considered rich in the package-goods industry.

"Procter overpaid for what they got but underpaid for what they will get," Mr. Stibel said, noting Gillette is unique among peers in market-share dominance and margin.

Unilever still carries a heavy debt load from buying Bestfoods. One of the more interesting theories making the rounds is that by undoing its last deal, Unilever could help pay for its next one.

Analysts speculate that Unilever could spin off its food business in an initial public offering at the same time it would acquire or merge with Colgate, helping both raise cash and quiet concerns among investment banks (and their analysts) who hope to get a piece of the IPO action.

One indication of Unilever's interest in Colgate comes from steps it took in 2003 when it sold its four U.S. toothpaste brands to Church & Dwight. At Church & Dwight's urging, the deal included a noncompete clause barring Unilever from launching another toothpaste in the U.S. According to a person familiar with the deal, Unilever insisted the clause include an exemption should Unilever acquire one of the top three U.S. oral-care brands.

Brad Casper, president-personal care of Church & Dwight, confirmed the existence of a noncompete clause, but he said he was uncertain of the clause's wording and could not comment if he was. A Unilever spokeswoman declined to comment.

At Energizer, insiders have little doubt Chairman William Stiritz's ultimate plan includes selling or merging the company, said an executive familiar with the company.

But it's unclear P&G-Gillette competitors will start speed dating. Timothy Ramey, an analyst with D.A. Davidson & Co. who handled merger-and-acquisition work for Sara Lee as an executive there five years ago, believes most food companies that took part in the merger spree regret it now-or should as most of the merged companies have struggled.

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