Gillette deal adds value but logistics will be challenging
proposed $57 billion acquisition of Gillette, with analysts
recommending Gillette shares as a good buy, but experts are
expecting that the deal will bring headaches for management, not to
mention a host of job losses, reports Simon Pitman.
"Strength plus strength will equal success as a very strong Gillette combines with an equally strong P&G," James Kilts, CEO of Gillette, told a gathering of financial journalists in the US recently. "We will create a global company built upon scale, diversity, and brand strength - all requisites for consistent growth in a consolidation, highly competitive global environment."
Shares in Gillette have been nudging upwards ever since P&G announced its plans to acquire the world's leading name in shaving and associated men's personal care product, although initial investor interest has now died down, with share prices opening slightly down on the NYSE at $50.85.
Although many people were initially shocked at the size of the proposed investment, P&G says that the global spread of the brand name and the cost savings that the acquisition will bring about through associated synergies will only strengthen the P&G brand.
Research from StockPickReport.com last week suggested that buying shares in Gillette was a good short term investment as shares are expected to continue to edge higher as the deal nears its scheduled completion in Autumn.
The Financial Times says that the deal between the two companies means that bargaining power will be enhanced with big retailers such as Wal-Mart, putting it in a particularly strong position to penetrate harder into emerging markets such as Eastern Europe and Asia.
However, not the deal is not expected to be all plain sailing for P&G. One problem in particular that the FT point out is managerial problems for the company's leading executives, who may struggle to manage an operation with such a considerable global reach.
On a grass roots levels, many of Gillette's operations are expecting to shed jobs, as production and administration synergies are realised. Industry experts believe that many of the job losses are likely to hit in regions with higher wage levels, such as western Europe and the North America. Indeed P&G has estimated that the deal should initiate initial savings of around $14 - 16 billion a year.
Many of the expected job cuts are expected at Gillette's Boston, US, headquarters. Gillette estimates that the workforce will shrink by 4 per cent, representing approximately 6,000 of its 140,000 combined global workforce.
Currently US politicians say they are investigating whether or not Gillette retirees will lose health benefits if the deal goes ahead, a suggestion P&G has to date refused to comment on.
