P&G is offering to sell off most of the oral-care brands and products it and Gillette have acquired in recent years, according to a person familiar with its talks with the government. And one former staffer at the FTC, which is reviewing the deal, believes P&G may have to go further-jettisoning the Oral-B brand in the U.S.
Estimates suggest both Right Guard and Oral B could fetch in excess of $250 million.
The company on July 15 said it will divest its Crest Spinbrush business in the U.S., Canada, Europe and Japan following a decision by the European Union to allow the deal to proceed. Shareholders of the two companies approved the deal last week, but it also must be approved by the FTC in the U.S. before it closes.
P&G declined to comment on the U.S. review, other than saying it continues to work with the FTC in meeting data requests and still expects the deal to close by the fall. Divestiture requirements in the U.S. are likely to be tougher because the companies have far higher combined market shares than in Europe.
A person briefed on the talks said P&G has offered, in addition to Crest Spinbrush, to shed Oral-B Rembrandt whitening products, Glide dental floss and Zooth toothbrushes in the U.S. to appease the FTC.
He said the company also appears resigned to divesting Right Guard, though the company is arguing that because it and P&G's Old Spice appeal to different age ranges, the companies' combined share of over 50% in male deodorants shouldn't be a problem.
David Balto, the former FTC staffer now with Robins, Kaplan, Miller & Ciresi, said he believes P&G will have to divest the entire Oral-B brand in the U.S. rather than the smaller collection of recent acquisitions.
"The way these things go is that the company starts out offering to sell a toothpick plant, saying `that's oral-care, isn't it?"' he said. "I don't think that's going to work here."
The Justice Department staff was prepared to take P&G to court over its 2001 acquisition of Clairol due to combined shares that were lower in some categories than in the current deal and in more broadly competitive hair-care categories, he said. Though, in a testament to the skill of P&G's attorneys, higher-ups decided not to proceed.
P&G's divestitures could set off eager bidding. Should Oral-B go up for sale, it should attract the broadest interest, predicted analysts and industry observers. They cited Johnson & Johnson as a potential acquirer, and smaller players such as Church & Dwight, Chattem and Energizer for some of the smaller oral care businesses.
Energizer, according to a person familiar with the matter, passed on a chance to acquire Spinbrush before P&G bought it in 2001 and later regretted it. But industry M&A specialists said P&G may be hard-pressed to recoup all of the $475 million it paid for Spinbrush, whose original fast growth trajectory has flattened.
For P&G, the timing couldn't be worse to sell SpinBrush. The company issued a recall with the retail trade this spring on its Spinbrush Pro and Pro Whitening products because of a problem with compatibility of the brush heads with baking soda and peroxide toothpastes. That cut its share of the power brush market from more than 30% in the first quarter to under 15% for the eight weeks ended June 15, according to figures from Information Resources Inc. reported by Deutsche Bank. A spokeswoman said P&G plans to reintroduce the line in the fall.
Right Guard might attract broader interest, people familiar with mergers & acquisitions in the industry said, with possible candidates including Kao Brands, Henkel and Beiersdorf.
Terms of the merger allow either side to walk away if required divestitures total more than $1.9 billion in annual sales, but even a requirement to divest Oral-B in the U.S. is likely to trigger that provision.