Procter & Gamble Vs. Gillette Essay
Proctor & Gamble are very comparable to each other when it comes to their profit margins. P&G’s operating and net profit margins are lower than Gillette’s however they still have similar rate patterns over time. Impressively categorized as “cash cows”, P&G and Gillette have increased yearly profitability from 2000 to 2005. On the other hand, Proctor & Gambles Debt to Assets ratio s are higher when compared to Gillette’s, but has dropped steadily over the years indicating they were a financially stable company that could support its spending big spending habits. Gillette, also financially stable, had a lower Debt to Assets % in 2000 – 2001, followed by a spike in 2002 which tells us that they invested some money into expansion in order to promote growth. 2002 – 2004 Debt to Asset ratio diminishing shows Gillette recovering from the investment in 2002, so they were on the right track to recovery and growth.
Overall both companies are showing very good financials and history. From the looks of it, the addition of Gillette’s business units will most defiantly boost Proctor & Gamble earnings and overall company wellbeing.
Compound Annual Growth Rate 2000 – 2005
Net Sales 7.3% 6.0%
Operating Income 12.9% 13.0%
Net Earnings 15.4% 44.1%
Diluted Net Earnings Per Common Share 15.4% 46.0%
Dividends per Common Share 16.7% 0.0%
4. What is your assessment of the $57 billion acquisition price Procter & Gamble paid for Gillette? Does the 20% purchase price premium seem appropriate? Are the sales and EBITDA multiples based on the 57 billion purchase rice in line with other mergers in consumer goods industries? Does the .975 exchange ratio seem fair to both P&G shareholders?
When you look at the EBITDA based $57 billion dollar acquisition price Proctor & Gamble paid for Gillette alone it seams high compared to other companies in the same industry. When you factor in the 20.1% percent price premium into the deal it starts to look more favorable for Proctor & Gamble and shareholders alike. Overall, the merger seamed very fair and profitable for both sides as well as providing positive outcome for shareholders.
Strategic actions that should be taken to benefit shareholders and actions to achieve the 1+1=3 effect are directly related, the better the company performs the more the shareholders benefit. With that said, there are a number of steps, guidelines and goals Proctor & Gamble should take to gain the most out of the merger.
• Conducting the merge without interrupting the ongoing operations would be a good start.
• Ensuring that everything is intertwined correctly in order to maximize productivity and efficiency will build a great foundation and set of goals to go by, creating new opportunities that didn’t exist before.
• Completing the merge quickly and trying to expand the company and branch out to new consumers through new marketing strategies
New acquisitions are always a positive for a newly developed merger looking for a new field to branch into. New ideas, locations or product lines to venture into are good directions to head. Depending on the market situation and location any one of those options can increase revenue or customer’s brand recognition and brand loyalty. In the beginning, it’s not generally a great thing to start eliminating business units unless they aren’t doing to well to begin with. Also a company needs to look out for similar business units that may be brought together by the merger so that money isn’t wasted in duplicating a newly gained product that might not sell as good as one already being produced.
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