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Procter & Gamble Acquires Gillette
Jan 28, 2005
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The Procter & Gamble Company (P&G) announced it has signed a deal to acquire 100 percent of The Gillette Company, creating what some believe is the world's largest consumer goods company. The transaction is valued at approximately U.S. $57 billion.

Gillette, founded in 1901 and headquartered in Boston, MA, U.S., markets a number of consumer products such as Gillette(R) razors and blades, including the Mach3(R) and Venus(R) brands; Duracell(R) CopperTop(R) batteries; Oral-B(R) manual and power toothbrushes; and Braun shavers and small appliances.

Under terms of the agreement, P&G has agreed to issue 0.975 shares of its common stock for each share of Gillette common stock. Based on the closing share price of P&G and Gillette stock on January 27, 2005, this represents an 18-percent premium to Gillette shareholders.

P&G will acquire all of Gillette's business, including manufacturing, technical, and other facilities. The transaction, which is subject to certain conditions including approval by Gillette's and P&G's shareholders and regulatory clearance, is expected to close in fall 2005.

In addition, P&G and its subsidiaries plan to buy back $18 to $22 billion of P&G's common stock during the next 12 to 18 months. Over time, this will essentially result in a total financial impact on the company as if the deal were structured with approximately 60-percent stock and 40-percent cash, P&G said.

"This combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity," A.G. Lafley, chairman, president and chief executive of Procter & Gamble, said in a statement. "Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale, and go-to-market capabilities, making it a terrific fit."

Mr. Lafley also said James M. Kilts, Gillette's chairman of the board, CEO, and president will join P&G's board of directors and serve as P&G vice chairman - Gillette.

"This marks the realization of an historic next phase of great opportunity for Gillette and also for P&G," Mr. Kilts said in a statement. "It brings together two companies that are complementary in their strengths, cultures and vision to create the potential for superior sustainable growth."

Warren E. Buffett, chairman and CEO of Berkshire Hathaway Inc., Gillette's largest shareholder called the transaction "a dream deal."

"I intend to purchase enough shares so that by the time the deal is closed, we will have 100 million shares of P&G," Mr. Buffett said. Berkshire Hathaway currently holds 96 million shares of Gillette stock, which represents the equivalent of 93.6 million shares of P&G.

P&G said the two companies create a stronger brand portfolio, opportunities for even more innovation, faster sales growth, and cost savings synergies. As a result, the company has raised its annual sales growth target from 4 to 6 percent to a revised 5 to 7 percent.

P&G expects to achieve revenue and cost synergies at a present value of about $14 to $16 billion, mainly through the scale of the combined company applied to leveraging P&G's organization structure, removing duplicate costs, and driving further efficiencies. P&G said it anticipates enrollment reductions of approximately 6,000 employees, or about 4 percent of the combined work force of 140,000. Most of these reductions should come from eliminating management overlaps and consolidation of business support functions, the company said.

"We will field the best team possible to lead these new businesses, drawing from both Gillette and P&G management," Mr. Lafley said.

The company said it will announce specifics related to employee separations in the near future, but plans to maintain a strong presence in the Boston area.

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