Boy meets GirlGillette and P&G Hook up Their Brands

Company Profiles

Procter & Gamble

• On October 31, 1837, Procter & Gamble was born. (William Procter and James Gamble).

• A multinational corporation headquartered in downtown Cincinnati, Ohio and manufactures a wide range of consumer goods.

• P&G is a global manufacturer of consumer goods, including household care, beauty care, health, baby and family care products.

• In 2011, P&G recorded $82.6 billion dollars in sales.• In 2011, Fortune magazine ranked P&G at fifth place of the "World's

Most Admired Companies" list. • Procter and Gamble is a tier one sponsor of the London's Olympic

Games 2012 and sponsors 150 Athletes.

http://en.wikipedia.org/wiki/Procter_%26_Gamble

Gillette

• The original Gillette Company was founded by King Camp Gillette in 1901 as a safety razor manufacturer.

• The Gillette brand is synonymous with shaving and personal care products.

• King Gillette sought protection of his fledgling business for safety razors when he applied for the trademarks for razors and razor blades, soap, and shaving brushes on Wednesday, May 27, 1908.

http://en.wikipedia.org/wiki/Gillette_(brand)

$57 Billion DealProcter & Gamble employs a workforce of 110,000 worldwide and has a market capitalization of $141 billion. Gillette employs 29,400 employees worldwide and has a market capitalization of $45 billion :-2005

• Merrill Lynch & Co. acted as financial advisor and Cadwalader, Wickersham & Taft, LLP acted as legal counsel to P&G.

• UBS and Goldman Sachs acted as financial advisor and Davis, Polk & Wardwell acted as legal counsel to Gillette.

Commission of the European communities

• The transaction was valued at approximately $57 billion (USD) based on closing NYSE stock prices of Jan. 27, 2005.

• “On 27 May 2005, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which the undertaking The Procter & Gamble Company (FP&G, USA) acquires within the meaning of Article 3(1)(b) of the Council Regulation control of the whole of the undertaking The Gillette Company (Gillette, USA) by way of purchase of shares.”

http://ec.europa.eu/competition/mergers/cases/decisions/m3732_20050715_20212_en.pdf

The Concentration

• CEO- P&G: A.G. Lafley and Gillette: Jim Kilts.• The proposed concentration was effected through a merger between a

wholly-owned subsidiary of the Procter & Gamble Company, Aquarium Acquisition Cooperation, formed for the purpose of the contemplated merger, with the Gillette Company. As a result, Gillette will continue as the surviving operating unit and will become a wholly owned subsidiary of P&G. The operation consist in the acquisition of sole control of Gillette.

• EXCHANGE RATIO- Each Gillette common share was converted into the right to receive 0.975 shares of P&G common stock. Valuing the stock at $53.94 -- a premium of about 18 percent.

Exchange of Gillette Shares

• The offer valued Gillette's shares at about $54 a share.• Gillette shares held in the BuyDIRECT Plan, including

dividend reinvestment shares, are being automatically converted into the P&G Shareholder Investment Program (“SIP”) at the 0.975 rate, with resulting fractional shares credited to P&G SIP accounts.

• Gillette shares held in the Direct Registration System (“DRS”) are being automatically converted into whole shares of P&G common stock in DRS form.

Responses

• Shareholders of both companies overwhelmingly approved P&G's acquisition of Gillette that would form the world's largest consumer products company, with such brands as P&G's Pampers and Gillette's line of razors. In announcements at separate special meetings, the companies said 96 percent of the shares that were voted favored the merger.

• News of the deal sent Gillette’s shares soaring $5.49, or 12 percent, to $51.17 in very heavy trading midday Friday on the New York Stock Exchange, while P&G’s fell $1.50, or 2.7 percent, to $53.82 also on the NYSE.

• Skeptical Wal-Mart – Negotiation power with Procter.• P&G and Gillette would have 21 brands with more than

$1 billion in annual sales each.

Adjustments

• On Wall Street, shares in Gillette closed up nearly 13% on Friday, while P&G slid 2.1%.

• Involved 6,000 job cuts, 4% of the combined workforce of 140,000. Company expected to reap $14 Billion in cost savings.

• Mr. Buffett owns about 33% of Berkshire Hathaway which in part owns 10% of Gillette. And at the end of the merger, he would be receiving 93million shares of the new company.

• Regulatory Concerns: P&G’s focus on more valuable brands has led to it shedding a number of ailing lines. It has sold off Sunny Delight, Sure deodorant and several detergents, and there is speculation that Lafley will soon dispose of underperforming brands from the Gillette business.

ROE-2010

Did the deal pay off??

• Most of Gillette's senior managers (with the notable exception of current P&G Vice Chairman Ed Shirley) have left.

• P&G's stock has lagged behind key competitors', including Colgate-Palmolive Co. and Unilever.

• The recession buffeted Gillette's core business -- pricey razors and blades.• P&G's stock is up 12% since the day before the deal was announced in

2005. That's better than the S&P 500, down 8% over the same period. But it's worse than two of the three competitors most directly affected by the deal, including Colgate-Palmolive Co. (up 53%) and Unilever (up 36%).

• Privately at least, some veteran P&Gers looked down on the marketing skill set of the incoming Gillette people. Some of the incoming Gillette people found the P&Gers remarkably resistant to new ideas.

However….

• XXL• P&G’s triumph- Gillette Fusion

system razor.• Gillette is strong in countries

such as Brazil and in India, where P&G has always been outperformed by Unilever. P&G has excellent penetration and distribution in China, the Philippines and fast-growing Eastern European markets such as Russia and Poland.

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