Analysts give P&G-Gillette deal their backing
proposed merger with Gillette, financial analysts at the Prudential
Equity Group have upgraded the company's financial rating, partly
on the strength of the added impetus the planned merger with
Gillette is expected to bring, reports Simon Pitman.
P&G announced at mid-day EST today that shareholders had accepted the decision to go ahead with the Gillette merger, with 96.5 per cent of cast votes saying 'yes' - the equivalent to over 70 per cent of the issued and outstanding shares.
P&G CEO A. G. Lafley said,"We're extremely pleased to see shareholders recognize the value in combining our two companies. The combination will enable us to leverage each company's strengths to drive more consistent and stronger consumer and shareholder value over the long term."
Adding further impetus to the deal, leading analysts have upgraded their forecasts because of the longer-term strengths it is expected to bring to P&G. The Prudential raised it weighting for the personal care and consumer products giant from a 'neutral weight' to a 'overweight', stating that the 'time is right' to invest in the company, projecting that return rates on shares have a potential of reaching 17 per cent.
As expected, the analysts' upgrade jolted trading in P&G shares, pushing them up from $52.96 to $54.36 in lunch-time trading on the New York Stock Exchange today. The projected figures means that P&G shares could rise to $62 if the deal goes ahead.
In making the upgrade, the Prudential said that it was the promise shown by its forthcoming merger deal with P&G that was the main reason for the move.
"We believe P&G will not only become a much bigger company, it will also become a stronger one," a Prudential client note stated. "We like what the combination represents in terms of design, technology and market capabilities, and we like the broader brand portfolio and geographic reach P&G will have."
But one major obstacle remains to finish off the deal. European competition regulators still have not given their approval to the $57 million deal as they investigate whether or not the two companies have too much cross-over in the competitive oral care category.
P&G said it had already agreed to a divest a number of its businesses in the oral care category, but it is believed that regulators are not fully satisfied with the company's proposals so far.
However, further concessions could be on the cards, as both P&G and Gillette have said that they are willing to divest oral care businesses to the tune of several hundred million dollars in order to secure the deal.
Further pressure is also coming from the UK consumer lobby group Which. According to a report from MarketWatch, the group agrees with the companies' competitors, saying that the merger could eliminate a number of smaller competitors from retail shelves.
European regulators have set a deadline for its decision on the deal of July 15. Further to this, if no clear decision has been made, a more comprehensive investigation will take place lasting up to six months.
