Mgt 431 – Strategic Management (Wk 4 - Case Analysis on Proctor & Gamble)
August 25, 2008
MGT 431 – Strategic Management
Dr. Janet Durgin
Overview In 2005, Procter and Gamble completed the largest acquisition merger in its history – a $57 billion buyout of the Gillette Company. But analysts were concerned that Procter and Gamble had only succeeded in diluting its earnings-per-share and investors feared that the buyout of Gillette shares from stockholders was too generous in the midst of this acquisition. The larger question is whether or not Procter and Gamble made the right decision when choosing to take on such a monumental feat.
Key Elements
Procter & Gamble. By 2005, Procter and Gamble had 16 ‘billion-dollar brands’ across three product-based segments: household care; health, baby and family care; and beauty care. It was experiencing rapid growth in a fragmented market as demonstrated by its 100% increase in market capitalization. Revenues had increased by over 40% and profits had doubled. Gillette. By 2005, Gillette had 5 brands that were generating in excess of $1 billion annually. They had products in five business segments: blades and razors; Duracell; oral care; braun; and personal care. They had a “70% market share in razors and razor blades and a 40% share in alkaline batteries” (Thompson, et al, 2007). A presence in over 200 countries, and a 16% increase in profits during 2004 put them in a strong market position. Merger. The agreed upon price was set at $57 billion. Gillette shareholders would receive 0.975 shares of Procter and Gamble stock for every share of Gillette stock they owned. (Considering the Procter and Gamble stock was trading at significantly higher prices, the Gillette shareholders were actually earning approximately 20% on their current holdings.) The reduction of 6,000 duplicate positions in addition to cross value chain synergies would result in annual savings of approximately $1 billion.
Merger SWOT Analysis
Strengths. There would be a
MGT 431 – Strategic Management
Dr. Janet Durgin
Overview In 2005, Procter and Gamble completed the largest acquisition merger in its history – a $57 billion buyout of the Gillette Company. But analysts were concerned that Procter and Gamble had only succeeded in diluting its earnings-per-share and investors feared that the buyout of Gillette shares from stockholders was too generous in the midst of this acquisition. The larger question is whether or not Procter and Gamble made the right decision when choosing to take on such a monumental feat.
Key Elements
Procter & Gamble. By 2005, Procter and Gamble had 16 ‘billion-dollar brands’ across three product-based segments: household care; health, baby and family care; and beauty care. It was experiencing rapid growth in a fragmented market as demonstrated by its 100% increase in market capitalization. Revenues had increased by over 40% and profits had doubled. Gillette. By 2005, Gillette had 5 brands that were generating in excess of $1 billion annually. They had products in five business segments: blades and razors; Duracell; oral care; braun; and personal care. They had a “70% market share in razors and razor blades and a 40% share in alkaline batteries” (Thompson, et al, 2007). A presence in over 200 countries, and a 16% increase in profits during 2004 put them in a strong market position. Merger. The agreed upon price was set at $57 billion. Gillette shareholders would receive 0.975 shares of Procter and Gamble stock for every share of Gillette stock they owned. (Considering the Procter and Gamble stock was trading at significantly higher prices, the Gillette shareholders were actually earning approximately 20% on their current holdings.) The reduction of 6,000 duplicate positions in addition to cross value chain synergies would result in annual savings of approximately $1 billion.
Merger SWOT Analysis
Strengths. There would be a
References: Thompson Jr., A.A., Strickland III, A.J., & Gamble, J.E. (2007). Crafting & executing strategy: The quest for competitive advantage. New York: McGraw-Hill/Irwin.