A P&G spokeswoman said none of the information uncovered by the operation-launched in October 2000, a month after Bristol-Myers announced it would sell its haircare business-was used by P&G to prepare its winning $4.95 billion bid for Clairol. That deal, announced in May, is pending regulatory approval.
The spy operation, first revealed by Fortune on its Web site, included "dumpster diving" in a trash bin on public property outside at least one Unilever marketing office, P&G said. P&G shut the operation down and brought it to Unilever's attention after P&G Chairman John Pepper discovered it in April, according to people familiar with the matter. P&G said it dismissed three employees involved in the operation. But a P&G spokeswoman said the company broke no laws and did not use misrepresentation to get information, though the operation did violate P&G policies concerning ethical intelligence operations.
At press time Aug. 31, P&G and Unilever were hammering out a settlement that would severely restrict P&G's ability to act on any information gathered via the operation, according to a person familiar with the talks. The unprecedented deal between the global rivals is likely to include:
* The reassignment of key P&G haircare executives to other parts of the company;
* Restrictions on P&G's haircare marketing activities through 2003 (a crucial time for P&G as it integrates the Clairol acquisition, if approved);
* Appointment of an independent investigator to monitor P&G marketing activities to ensure they aren't based on information obtained through the covert operation and;
* A cash payment from P&G to Unilever of more than $10 million.
Neither P&G or Unilever would comment on terms of the discussions.
Information turned over to Unilever from P&G included 80 pages with detailed 2002 marketing and product development plans for Unilever's haircare brands, including Thermasilk, Suave and Salon Selectives, said the executive familiar with the matter. He said P&G spent $3 million on the snowballing six-month operation until a P&G employee blew the whistle after contractors involved "got greedy" and began hiring family members. P&G would not comment on spending, the extent of the spying or exactly how it came to light.
WHO SAW WHAT?
A Unilever spokesman would not comment on whether the company plans to roll out a hair color brand or on information P&G turned over to Unilever.
Fortune reported that contractors P&G used during the operation included the Phoenix Consulting Group of Huntsville, Ala. John A. Nolan III, founder of the company, would not confirm his company worked for P&G, citing confidentiality. But he said his company's policy is for its employees never to misrepresent themselves and not to engage in "dumpster diving" to gather intelligence on a client's competitors. Phoenix will search clients' dumpsters to show them their own vulnerability, he said.
Unilever threatened to file suit against P&G this week if no settlement is reached. According to the executive close to the talks, the suit would likely seek to discover exactly who within P&G had seen the sensitive information and force anyone who had to be moved to other positions in the company. The P&G spokeswoman would not comment on who had seen Unilever information gathered through the intelligence operation or details of the talks, but said the information has not and will not be used by P&G.
She acknowledged the operation spanned the haircare business broadly rather than targeting Unilever specifically, but would not comment on whether P&G had contacted other competitors to inform them about the spying. A L'Oreal spokeswoman said the company is "not involved in this matter." Spokespeople for Bristol-Myers, Kao Corp. and Alberto-Culver could not be reached for comment.