Gillette, P&G May Have Undervalued Merger
Jun 29, 2005
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Secretary of the Commonwealth William F. Galvin made public a report from University of Virginia assistant professor Rajesh K. Aggarwal that criticizes the Gillette Co. and Procter & Gamble Co. for undervaluing their proposed merger by billions of dollars.

Mr. Aggarwal's report, which was released on June 28 but dated March 14, claims that errors in the companies' merger value calculations "benefit Procter & Gamble shareholders at the expense of Gillette shareholders" and that the public statements made by Gillette and Procter & Gamble officers "seem to understate the value of the merger."

In public statements and state court battles over the merger, Mr. Galvin has argued that Gillette could be worth up to U.S. $15 billion more than Procter & Gamble's proposed $57 billion purchase price. Shareholder votes on the deal are scheduled for July 12.

According to Mr. Aggarwal, the Boston, MA, U.S.-based Gillette's internal documents pegged the merger synergies as high as $22.1 billion to $28.1 billion, while the two companies' public statements estimated revenue and cost synergies of $14 billion to $16 billion.

Using the companies' data, Mr. Aggarwal's estimated the merger synergies at $18.9 billion to $28.6 billion, which would transfer $9 billion of synergy value to Gillette shareholders and $10 billion to $19.5 billion to Procter & Gamble shareholders. In public documents, the companies stated that Procter & Gamble shareholders would reap $5.5 billion to $7.5 billion in merger synergies.

Mr. Aggarwal also pointed out that although the merger terms are detrimental to Gillette shareholders, Gillette CEO James Kilts is collecting a $32.4-million change in control payment from Gillette and an "unusual additional payment" of $11.3 million from Procter & Gamble. (

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