Procter & Gamble’s Acquisition of Gillette Case Analysis

Chenming Liang

Procter & Gamble’s Acquisition of Gillette case analysis

3/15/2016

Key Challenge

The key challenge for P&G and Gillette was determined an effective acquisition to protect both side shareholder’s interests and earn profits. The acquisition can cause negative effects by using an all-cash or all-stock method. Shareholders of Gillette must pay taxes if using cash payment. Or they may not like to hold the stock of the other company if P&G using all-stock method. Even the valuation successfully rise Gillette’s stock price. It impact P&G drop its credit rating by completing the acquisition. They are required to face multiple levels of regulators not only SEC but also international policies. Although it faced opposition for their stakeholders in the short term, top managers of both companies considered long term impact of economic scale and social influence. They believe the cooperative business line could become an industry leader that has a better chance to deal with retailers.

External Analysis

Base on the materials on five forces analysis, the combine of P&G and Gillette have competitive advantages in the market. Both companies have a long history in their industry, barriers to entry are created because the capital investment grows larger and customer loyalty for those two companies is reliable. It may attract other customers to try our new product. The overture of both companies is same that a stronger union to defend itself bargaining of suppliers and retailers. According to the article, Gillette and Walmart relationship was significant that 13 percent sales in Walmart channel. A combined firm has better control pricing and counterbalance this pressure. As for rivalry among competitors, the combined firm takes advantage of different segment. The particular skilled in marketing for P&G is focusing women, but Gillette provides products for male customers. Gillette operates successfully in India and Brazil, but P&G has experience in the Chinese market. They can share strategies for the other product line to get differentiation opportunities against competitors. Speak for substitute products, both P&G and Gillette produced distinct kinds of products especially P&G owned 150 brands. I believe the combined firm could create superior value for customers that competitors cannot imitate easily. The opportunity for long term is greater than the threat. If the investor’s interest was hurt at the beginning of the acquisition, they will be made up in future profits.

Internal Analysis

The combined firm shares business lines against the competitors in the nationwide. Even the Gillette paid a huge number of the compensation package for its investors and fired employees. The capital gaining rose 50 percent after the acquisition. The resources and capabilities increase rapidly for male products by integrating P&G operation. Gillette obtained intangible resources such as human resources, reputation resources particularity female customers. Moreover, it lower risk to develop new products because P&G and Gillette focus on a different segment, they all had experts in one field. What’s more, it also helps the combined firm to develop market overseas to lower the fix cost.

Alternatives

        I believe that both CEOs and intermediary agents consider too little for stakeholders and government policies. Although the future of the merger operation could create huge profits. It associated some negative effects for employees, investors and state profits. Top management decided cost-saving strategy reducing work forces but sacrificed workers position; Shareholders fear the stock price brokered after acquisition；Massachusetts community reduces total earnings by cutting manufacture plant. As for two publicly traded companies, they faced multiple regulators in the US. Series trouble is required to be avoided and many filed need to be considered. Also P&G and Gillette are in a similar business. They are forced to divest assets. It causes threat for new product development and a unique brand. Because the kinds of limited for antitrust, combined firm need to sell some of business lines to fit the law. It directly reduces product differentiation and core compensates, because Gillette sells its product line to rivalry competitor Johnson& Johnson. Also the state of Massachusetts set up a court to determine the impact of the acquisition. They also would face some oversea antitrust laws after acquisition, top management need to take efforts to deal with illegal issues. All those issues creates a lot of work for top managements. They would reduce short term strategy for product development. In conclusion, the alliance between two industry leaders would cause short period troubles.