By  on January 31, 2005

NEW YORK — Procter & Gamble’s deal to acquire the Gillette Co. for about $57 billion is intended to boost the competitive edge of both companies in the beauty, health and personal care industries, which will account for 50 percent of P&G’s portfolio.

The prize component for P&G (the combined consumer-products colossus would have more than $60 billion a year in sales) is Gillette’s almost bulletproof razor and blades business. 

Some retailers — including Wal-Mart — may have misgivings about the union, said consumer products analyst Bill Chappell of SunTrust Robinson Humphrey. A larger P&G, already the category captain across several beauty and personal care categories, could shift the balance of power between retailers and suppliers that now tips in favor of retailers who push for lower prices.

“The addition of Gillette’s brands accelerates the evolution of P&G’s portfolio in the faster-growing, higher-margin and more asset-efficient health, personal care and beauty business,” Alan G. Lafley, chairman and chief executive officer of Cincinnati-based P&G, said during an earnings call with investors.

Gillette gives P&G a total of 21 brands with sales of $1 billion to $5 billion. “Combined, we are the market leader in categories that represent two-thirds of total company sales,” Lafley said.

 P&G agreed to exchange 0.975 share of common stock for each share of Gillette common stock. In the next 12 to 18 months, P&G plans to buy back between $18 billion and $22 billion of its common stock, resulting in a financing structure of about 60 percent stock and 40 percent cash.

P&G shares closed at $54.27, up 1.86 percent, in New York Stock Exchange trading. Boston-based Gillette closed at $51.79, up 13.35 percent. 

The deal has been approved by the board of directors at both firms, but must still be approved by regulators and shareholders.

“It’s a dream deal,” said Warren Buffett, chairman of Berkshire Hathaway, Gillette’s largest stockholder. Berkshire Hathaway holds 96 million shares of Gillette, the equivalent of 93.6 million shares of P&G.

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