P&G-Gillette Union Could Hit Shoppers in Pocketbook

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Tom Petruno The World The Nation January 29, 2005 E-mail story Print Most E-Mailed P&G-Gillette Union Could Hit Shoppers in Pocketbook q The combined firm may have the clout to resist retailers' calls for lower prices, experts say. Rivals may try to merge too.
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Same Wave of PR > more e-mailed stories By James F. Peltz, Times Staff Writer Could Procter & Gamble Co.'s blockbuster plan to buy Gillette Co. ultimately shave consumers' wallets? By merging their production and marketing muscle in a $53-billion transaction confirmed Friday, the manufacturers hope to stifle demands from supermarkets, drugstore chains and mass-merchandisers for lower prices, some analysts said. And that same desire for pricing clout as well as the need to beef up in the face of a super-sized rival could lead to marriages among other household products firms. "This is a potentially inflationary transaction" if a beefed- up P&G can push through price hikes, said Jonathan Zielger, an analyst in Santa Barbara with investment firm J.M. Dutton & Associates . But Ziegler added that even if P&G negotiated higher prices for its goods, it's not definite that they would be passed on to consumers. "A retailer, for example, might swallow the cost increase to stay competitive," he said. Jack Brown, chief executive of Colton-based Stater Bros., vowed to deflect any price hike that Procter & Gamble or other supplier might try to impose on the 160- store grocery chain. "Unless there's some justification for it," such as higher raw-materials prices, "obviously we will fight it, and others will too," Brown said. The deal would bring together two companies, both more than a century old, that produce some of America's most familiar product lines. Based in Cincinnati, P&G has a vast stable that includes Crest toothpaste, Folgers coffee, Head & Shoulders shampoo, Clairol hair products, Tide detergent and Iams pet food. a d v e r t i s e m e n t P&G-Gillette Union Could Hit Shoppers in Pocketbook http://www.latimes.com/business/la-fi-pampg29jan29,1,6890402.story (1 of 4)2/1/2005 4:58:24 AM Your ZIP P&G-Gillette Union Could Hit Shoppers in Pocketbook California | Local Business Politics Sports Travel Editorials, Op-Ed Sections Arts & Entertainment Books
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COMPETITION Boston-based Gillette's roster includes the Mach3 and Venus Divine families of razors and blades, Oral-B toothbrushes and Duracell batteries. The companies said Friday that P&G would acquire Gillette by exchanging 0.975 of a P&G share for each share of Gillette. P&G's stock fell $1.17 to $54.15 a share Friday. At that price, the deal is worth $52.80 per Gillette share. In response to the deal's announcement, Gillette's stock soared $5.92, or 13%, to $51.60. Both trade on the New York Stock Exchange. After the buyout, which is expected to close this fall, Procter & Gamble said, it would have 21 brands generating at least $1 billion in annual sales each. The familiar brands of P&G and Gillette also aren't expected to disappear, said Alan Siegel, chairman of Siegel & Gale, a consultant on corporate branding. There is very little overlap among the companies' product lines, and most remain top sellers, he said. "In the near term, I would see no major changes for consumers," Siegel said. Wall Street speculated that other consumer-products companies might soon join forces to compete with the new P&G behemoth, whose total annual sales of more than $60 billion would make it the world's largest household-products maker. Potential buyers and sellers include Oakland-based Clorox Co., Kimberly-Clark Corp., Colgate-Palmolive Co., Alberto-Culver Co. and Unilever, they said. Most of the companies' stocks rose Friday amid the speculation. Procter & Gamble also would have about 140,000 employees worldwide after buying Gillette. The company said it expected to cut about 6,000 of those jobs to eliminate redundancies. While not providing specifics, Procter & Gamble said the cuts would mostly be management and "business support" jobs, not manufacturing. The firms' product lines have very little overlap. Procter & Gamble currently has 37 domestic manufacturing sites, including one in Oxnard where 500 employees make Bounty and Charmin paper products. Gillette has a distribution center in Ontario. Gillette Chief Executive James Kilts said he believed consolidation among the major consumer-products makers was inevitable as they try to gain more pricing leverage and shelf space with stores, especially with mammoth retailers such as Wal-Mart Stores Inc. and Costco Wholesale Corp. that can demand rock-bottom prices. So Gillette approached P&G to secure the partner it valued most, Kilts said. "I'm a great believer in scale," Kilts told analysts in a conference call, adding that Gillette wanted to choose its partner rather than "get stuck with the leftovers." One immediate beneficiary of the proposed buyout is billionaire Warren E. Buffett, known for his long-term investments in stocks that almost always pay off in a big way. His holding company, Berkshire Hathaway Inc., is Gillette's largest shareholder, with 96 million shares. Under the deal, Berkshire would receive 93.6 million shares of Procter & Gamble, a stake Buffett said he would raise to 100 million shares by the time the buyout is completed. "It's a dream deal," Buffett said in a statement. http://www.latimes.com/business/la-fi-pampg29jan29,1,6890402.story (2 of 4)2/1/2005 4:58:24 AM GO P&G-Gillette Union Could Hit Shoppers in Pocketbook Find a Job
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Recycler.com Partners * (BEGIN TEXT OF INFOBOX) Restocking the shelves Procter & Gamble and Gillette plan to combine marketing muscle. * Procter & Gamble Founded: 1837 Headquarters: Cincinnati Employees: 110,000 Major brands: Pampers, Tide, Folgers, Charmin, Crest, Olay, Head & Shoulders 2004* revenue: $51.4 billion2004 net income: $6.5 billion Sales by segment Beauty care: $17.1 billion Fabric/home care: $13.9 billion Baby/family care: $10.7 billion Healthcare: $7 billion Snacks/beverages: $3.5 billion * Gillette Founded: 1901 Headquarters: Boston Employees: 30,000 Major brands: Gillette, Mach3, Duracell, Oral B toothbrushes, Braun 2003* revenue: $9.3 billion 2003 net income: $1.4 billion Sales by segment Blades/razors: $3.9 billion Duracell: $2 billion Oral care: $1.3 billion Braun: $1.2 billion Personal care: $864 million *Latest available year. Procter & Gamble's 2004 fiscal year ended June 30. Sources: Company reports and Times research If you want other stories on this topic, search the Archives at latimes.com/archives . http://www.latimes.com/business/la-fi-pampg29jan29,1,6890402.story (3 of 4)2/1/2005 4:58:24 AM P&G-Gillette Union Could Hit Shoppers in Pocketbook Article licensing and reprint options Copyright 2005 Los Angeles Times By visiting this site, you are agreeing to our Privacy Policy Terms of Service . http://www.latimes.com/business/la-fi-pampg29jan29,1,6890402.story (4 of 4)2/1/2005 4:58:24 AM

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