P&G to buy Gillette in $57 bn stock swap

The deal will involve the issuance of P&G stock with no cash involved.

Cincinnati-based Procter & Gamble (P&G) on Friday said it would acquire Gillette in a deal valued at $57 billion, forming a combination that will overtake Unilever as the world's largest consumer and household goods company, with sales of $60.7 billion. The deal will involve the issuance of P&G stock with no cash involved.

The acquisition also gives P&G access to the world's best-selling line of men's razors. The fate of Gillette India is not clear as yet. P&G, valued at over Rs 1,000 crore, operates in India through two entities -- P&G Hygiene and Health Care (PGHH) and P&G Home Products (PGHP).

The Gillette India stock jumped 7.1 per cent (Rs 44.75) today to close at Rs 674.65 and the PGHH scrip gained 4.53 per cent (Rs 26.55) to close at Rs 612.55 on the Bombay Stock Exchange.

Apart from adding a slew of products, largely in the male grooming category, to P&G's kitty, the takeover will provide the company with a bigger distribution channel and a greater reach in the market.

The company will also enjoy more clout with dealers since it will have a wider range of products to offer. Apart from this, it will also get better deals in buying advertising spots.

It is likely that the sales, marketing and distribution set-up of the two companies will be integrated to derive the maximum benefit for the product portfolios.

Securities and Exchange Board of India officials said they would have to study the agreement between the two companies before arriving at any decision on whether P&G would have to make an open offer to Indian shareholders of Gillette India.

Sebi regulations do not specify whether all global takeovers must result in open offers. Each case is decided on merit by the regulator's takeover panel. Sebi officials, however, pointed out that a lot depended on how the acquisition was devised.

Shantanu Khosla, country manager, P&G India, said, "It is too early to predict the impact of the acquisition on P&G India's business."

Gillette India Chairman Saroj K Poddar told Business Standard: "I don't know the details of the deal and, therefore, I cannot comment on it. However, I believe Gillette is a committed and forward-looking company and will take care of its shareholders."

Asked about his stake in Gillette, he said he could not comment without going into the fine print of the deal. "We will consider the issue shortly," he added.

Poddar claimed his family owned a 15 per cent stake in Gillette India, which has an equity base of Rs 32.58 crore. He said the foreign promoters owned 75 per cent and 10 per cent was held by the public.

But shareholding data posted on the Bombay Stock Exchange website show that the Indian promoters, along with persons acting in concert, had a 44.74 per cent stake and the foreign promoters 41.02 per cent on December 31, 2004.

P&G Hygiene and Health Care, the listed entity, is in the business of health care and women's hygiene, with brands like Vicks and Whisper.

P&G Home Products, a wholly owned subsidiary, has shampoos (Head & Shoulders, Pantene & Rejoice), detergents (Ariel & Tide), soaps (Camay) and male grooming products (Old Spice) in its stable. While Camay has been licensed to Ahmedabad-based Nirma, Old Spice has been licensed to Menezes Cosmetics.

After P&G's acquisition of Wella of Germany, the company retained the Indian arm, Wella India Haircosmetics, as a separate entity.

The Rs 421.45 crore Gillette India is in the business of personal grooming products (razors, blades and foam), portable power (Duracell batteries) and Oral Care (Oral B and Prudent).

The fast moving consumer goods (FMCG) industry has been speculating on P&G's foray into the oral care segment through the launch of the Crest toothpaste. The acquisition of Gillette will give it a small presence in this business.

Although the industry has been growing at a snail's space, Gillette India has consistently been performing well because of the niche market it caters to. P&G, on the other hand, has had to face greater competition, mainly from Hindustan Lever.