P & G's business was organized into three product parts on the basis of: home care, health, baby and family care, beauty care. P & G has become a national company of consumer products with 30 brands and production facilities across the United States and Canada in 180. P & G also has seen an increase of more than 40% in revenue between 01 and 05. In 05, P & G implemented the largest acquisition deal with the acquisition of the Gillette company.
First, the causes of P & G's acquisition of Gillette
a) companies have complementary strengths in product innovation and activities sale of
P & G has a distribution system which is internationally spread compared with Gillette. It is expected that the administration take Gillette products in developing markets such as China, which were served by P & G, Gillette, but not immediately after the merger. P & G and Gillette also plan to share the cost of research and development in order to further develop their products to better suit their customers' needs.
B) the strongest lineup of brands
wasGillette razor known in the market brand, and it also has 70% market share in the global market shaving. It has a strong competitive position, and Gillette was successful in persuading customers to trade up to the highest point of personal care items price. Gillette customers also tend to be loyal too. The acquisition of Gillette will surely provide a competitive advantage for P & G and Gillette will provide is the most powerful brands to Procter & Gamble in a variety of consumer products industry.
C) to generate additional opportunities to achieve economies of scale
Gillette has a market share of enormous on its own while P & G has spread internationally from the distribution system. Combining the strengths of these companies together will enable the points both P & G and Gillette to reduce the unit cost by achieving economies of scale.
D) to strengthen relations and bargaining power with buyers Retail
competitive position strong that Gillette has in the consumer products industry and increase the bargaining power that P & G has more than buyers in the retail sector. P & G will be able to strengthen its position in the market through this deal. A stronger brand portfolio also definitely help strengthen relations.
second. Ways to generate synergies expected
a) layoffs
is generally expected layoffs when the bear mergers and acquisitions firm. It is estimated that about 4% of the total combined workforce will be laid off because of this deal. This is to remove overlapping management due to the integration of operations in more than 80 countries worldwide. These layoffs comes not only from the former Gillette operations, but also Procter & Gamble Company management.
b) Business eliminate
Since both Gillette and P & G operates in the consumer goods sector, they tend to have a few products that interfere with each other. Both Gillette and P & G have to sell some of its product line to eliminate interference and generate synergies between them. The integration of the production line of the companies important to make sure that there is synergy between them and the non-profit products are removed from their product line.
III. Financial Analysis of the P & G
wasprofit margin for P & G is very low from the year 00 to 04. P & G has seen an increase in the profit margin after 01. Gillett on the other hand, had a profit increase steadily since 00. sidelines and there they have a higher profit margin compared with P & G.
This shows that the performance of Gillette may increased steadily since 00, which witnessed an increase in sales and net profit annually. P & G has a much higher sales and net profits compared with Gillette's distribution system because of their internationally dispersed. However, P & G is still not able to perform the profit margin of Gillette match which is higher than P & G.
FCF increased the productivity of P & G 00-02 and then decreased from 02 onwards. On the other hand, Gillette saw a decline in 00-02, an increase of short-02-03 and then fell again as of 03.
and this shows that both Gillette and P & G did not have a lot of free cash flow in the company. However, free cash flow Procter & Gamble's performance has been much in comparison with the performance of Gillette better. This low free cash flow may pose a problem for P & G to acquire Gillette.
P & G has a much more free cash flow compared with Gillett and this can definitely help improve the Gillette Free cash flow productivity performance. However, it was offered the purchase price of Gillette's $ 57 billion which is very high and that will certainly affect the productive performance of free cash flow Procter & Gamble.
fourth. Conclusions and recommendations
Although the free cash flow may pose a problem in getting Gillette, and I believe that P & G should still acquire Gillette and Gillette can definitely help improve the financial performance of P & G and help provide P & G with a competitive advantage in the consumer products industry. P & G will also be able to improve free cash flow performance of Gillette by a large amount of free cash flow, and I think that there will be many investors who will find ready stock Procter & Gamble very attractive during the acquisition process.
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