Conglomerate Merger- p&g Gillette

Mergers and aquisitions
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  CONGLOMERATE MERGER A conglomerate merger is a type of merger whereby the two companies that merge with each other are involved in different sorts of businesses. The importance of the conglomerate mergers lies in the fact that they help the merging companies to be better than before. Types of Conglomerate Mergers There are two main types of conglomerate mergers  –   the pure conglomerate merger and the mixed conglomerate merger. The pure conglomerate merger is one where the merging companies are doing businesses that are totally unrelated to each other. The mixed conglomerate mergers are ones where the companies that are merging with each other are doing so with the main purpose of gaining access to a wider market and client base or for expanding the range of products and services that are being provided by them There are also some other subdivisions of conglomerate mergers like the financial conglomerates, the concentric companies, and the managerial conglomerates. Reasons of Conglomerate Mergers There are several reasons as to why a company may go for a conglomerate merger. Among the more common reasons are adding share of the market that is owned by the company and indulging in cross selling. The companies also look to add to their overall synergy and  productivity by adopting the method of conglomerate mergers. Benefits of Conglomerate Mergers There are several advantages of the conglomerate mergers. One of the major benefits is that conglomerate mergers assist the companies to diversify. As a result of conglomerate mergers the merging companies can also bring down the levels of their exposure to risks. Implications of Conglomerate Mergers There are several implications of conglomerate mergers. It has often been seen that companies are going for conglomerate mergers in order to increase their sizes. However, this also, at times, has adverse effects on the functioning of the new company. It has normally been observed that these companies are not able to perform like they used to before the merger took place. It has normally been seen that a lot of companies that go for conglomerate mergers are able to manage a wide variety of activities in a particular market. For example, these companies can carry out research activities and applied engineering processes. They are also able to add to their  production as well as strengthen the marketing area that ensures better profitability.  PROCTER & GAMBLE and GILLETTE MERGER - Sharmaine Carranza    The merger between P&G and Gillette happened during the year 2005. The merger created one of the world’s biggest consumer goods producers  with a combined turnover of roughly € 50 Billion. The deal would give the combined company even more control over shelf space at the nation's retailers and grocers. Procter & Gamble will pay 0.975 share of its common stock for each share of Gillette common stock as a part of the deal. Executives at the companies said they believe they'll both be able to grow faster together than separately, with P&G opening doors for Gillette in markets such as China and Japan while Gillette bringing P&G some product segments that are growing faster than the company's overall current portfolio of products. Because of expectations from the deal, P&G raised the annual revenue growth outlook to 5 to 7  percent, rather than its earlier target of 4 to 6 percent. Procter & Gamble Procter & Gamble Co., also known as P&G, is an American multinational consumer goods company headquartered in downtown Cincinnati, Ohio, United States, founded by William Procter and James Gamble, both from the United Kingdom. Its products include pet foods, cleaning agents, and personal care products. The company moved into other countries, both in terms of manufacturing and product sales. Numerous new  products and brand names were introduced over time, and Procter & Gamble began branching out into new areas. The company introduced Tide laundry detergent in 1946 and Prell shampoo in 1947. In 1955, Procter & Gamble  began selling the first toothpaste to contain fluoride, known as Crest. Branching out once again in 1957, the company purchased Charmin Paper Mills and began manufacturing toilet paper and other paper products. Once again focusing on laundry, Procter & Gamble began making Downy fabric softener in 1960 and Bounce fabric softener sheets in 1972. One of the most revolutionary products to come out on the market was the company's Pampers, first test-marketed in 1961. Prior to this point, disposable diapers were not  popular, although Johnson & Johnson had developed a product called Chux. Babies always wore cloth diapers, which were leaky and labor-intensive to wash. Pampers provided a convenient alternative, albeit at the environmental cost of more waste requiring landfilling. Procter & Gamble acquired a number of other companies that diversified its product line and significantly increased profits. These acquisitions included Folgers Coffee, Norwich Eaton Pharmaceuticals (the makers of Pepto-Bismol), Richardson-Vicks, Noxell (Noxzema), Shulton's Old Spice, Max Factor, and the Iams Company, among others.  Gillette Company The Gillette Company is the world leader in the men's grooming product category as well as in certain women's grooming products. It was established by King Gillette on 1901. Although more than half of company profits are still derived from shaving equipment--the area in which the company started--Gillette has also attained the top spots worldwide in writing instruments (Paper Mate, Parker, and Waterman brands) and correction products (Liquid Paper), toothbrushes and other oral care products (Oral-B), and alkaline batteries (Duracell products, which generate almost one-fourth of company profits). Gillette maintains 64 manufacturing facilities in 27 countries, and its products are sold in more than 200 countries and territories, with more than 60 percent of sales occurring outside the United States. In 1904 Gillette received a patent on the safety razor; sales rose to 90,884 razors and 123,648 blades that year. The following year the company bought a six-story building in South Boston. By 1906 the company had paid its first cash dividend. During the years before World War I Gillette steadily increased earnings through print advertisements, emphasizing that with his razor men could shave themselves under any conditions without cutting or irritation. Gillette eventually developed new product-delivery systems to replace aerosol cans, such as nonaerosol pumps and roll-ons, for Gillette's already-established product line, and he put advertising dollars behind the products, which included Right Guard and Soft & Dri deodorants and Adorn and White Rain hair sprays. He also started development of a new deodorant product, Dry Idea, which feels dry when applied. Dry Idea was launched in 1978 after two years of development at a cost of $118 million. It quickly recovered a quarter of the deodorant market for Gillette. The merger   Before the merger occurred, Procter & Gamble was largely absent from the men's  personal care market, a sector led by Gillette. Both companies have different market share, though the fact that its products were complimentary made the merger created one of the world’s  biggest consumer product companies. The merger happened between the two companies was considered a mixed conglomerate merger. The merger was completed on October 1, 2005. Procter & Gamble became the surviving company, while Gillette Company ceased its individual standing in the market.  Reasons to merge    P&G anticipated increase in profits in line with the increase of the products offered by it. The combined company was expected to have annual sales of $60 billion. It would own 21 brands of Gillette Company which has sales of more than $1 billion.    The merger will make it easier for managers to segment the market. After the merger, they will be able to position the brands more cleanly toward distinct segments.    P&G will reap the benefits of synergy- ability to accelerate innovation by transferring knowledge and technologies across a broader range of products.    P&G’s new size will also give it addition al power in negotiating advertising contracts.    Because both companies are struggling with slow growth in the consumer products industry, international expansion is another driver of the merger. P&G has 106 plants in 41 countries and Gillette has 31 plants in 14 nations. The combined company will generate between $17 billion and $18 billion in sales, or about 20% of total revenue, from developing markets.      P&G/Gillette merger could put additional pressure on other consumer products firms, such as Unilever, Nestle, Kimberly-Clark and Colgate-Palmolive, thus, making it more  powerful than before.  Implications of the merger    Issuance of 962 million shares of The Procter & Gamble Company common stock and 79 million stock options in exchange for Gillette’s outstand ing stock options to support the merger    Divestment of certain overlapping businesses (Spinbrush toothbrush business, Rembrandt (a Gillette oral care product line), Right Guard and other Gillette deodorant brands)    Involvement of 5500 job cuts. Though this would reap $14 billion cost savings, P&G has still incurred exit costs of $1.2 billion, including $854 in separation costs related to approximately 5,500 people, $55 in employee relocation costs and $320 in other exit costs. These costs are primarily related to the elimination of selling, general and administrative overlap between the two companies in areas like Global Business Services, corporate staff and go-to-market support, as well as redundant manufacturing capacity.    P&G’s stock has lagged behind its k  ey competitors.    The recession knocked Gillette’s core business - razors and blades    Some veterans of P&G looked down on the marketing skill set of incoming Gillette  people and were resistant to new ideas.


Jul 23, 2017
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