Home News Markets Technology Commentary Personal Finance Autos Real Estate
News > Fortune 500
    SAVE   |   EMAIL   |   PRINT   |   RSS  
Will others follow P&G-Gillette?
In wake of P&G-Gillette deal, takeover speculation not enough to lift other firms' stocks.
January 28, 2005: 1:56 PM EST
By Chris Isidore & Aaron Smith, CNN/Money writers

NEW YORK (CNN/Money) - The Procter & Gamble purchase of Gillette came after months of on-again, off-again talks, following years of rumor. So the question Friday morning is how long will it take for another major deal in the consumer products segment to be announced.

Some experts and observers say potential competitive advantages of the $57 billion blockbuster deal announced Friday would make it difficult for competitors to stand still.

"There's no question that the consolidation will continue," said Sean Egan, managing director of Egan-Jones Ratings Co. "Certainly Colgate (Research) and Unilever (Research) wouldn't be a terrible combination. And Energizer (Research) is too small to continue long term as an independent company -- it's a good fill-in acquisition candidate."

Other experts say that there will be pressure from Wall Street on P&G competitors to respond to Friday's deal.

"Today growth is such a critical component and is so hard to get," said Marshal Cohen, chief retail analyst with market research firm NPD Group. "Wall street doesn't like long slow steady growth. Acquistion is one of fastest ways to get that growth."

Lehigh University professor Samuel Weaver, an expert on mergers, said that even if other companies in the sector weren't looking at a possible deal Thursday, they were considering them Friday.

"Wheels are in motion. Most companies would maintain a hit list. They wouldn't initiate a deal unless there is a major event. And certainly investment bankers will look at what other combinations make sense," he said.

But none of those experts who see a new deal coming relatively soon in the consumer product sector are ready to predict which two companies will be the next to go to the corporate alter.

"It's too soon to say. In some cases even the partners don't even know it yet," said Cohen.

The competitive reason for a possible deal is the additional strength and bargaining leverage possible for P&G (Research), already the nation's largest consumer products company, and Gillette (Research), the dominant player in field of shaving and a strong No. 2 in sales of batteries with its Duracell business.

Food and consumer product makers are constantly fighting for shelf space and position by the nation's major retail chains. The deal gives the new P&G even more power to fight for space for its products, especially for allowing it to roll out new products. It also allows the combined company to cut production and distribution costs, and could even help it hold off demand from discount retailers such as Wal-Mart Stores (Research) to lower prices.

Another deal not sure thing

But shares of Colgate, Energizer and Kimberly-Clark (Research) were all lower at midday, some falling from early gains, as any hope for a takeover premium seemed to fade behind concerns about the competitive challenges the deal could bring for them before their own merger could be struck.

Unilever (Research), the No. 1 European consumer products company, and a more likely buyer than seller, was the only major consumer products company to be higher at midday.

Some of the experts in the field said that the they think that it's likely the competitors will wait for the dust to settle on the P&G-Gillette deal, which isn't expected to close until the fall, before they sought their own combinations.

"In next couple of years, the deal puts P&G at a disadvantage. They'll be inwardly focused. The integration challenge here is massive," said retail consultant Howard Davidowitz, president of Davidowitz & Associates. "That's an opportunity for competitors."

Some consumer product analysts agree there won't necessarily be a rush of other deals following Friday's announcement.

"I don't think everybody is going to follow the lead just because of this deal," said William B. Chappell, consumer products analyst for Suntrust Robinson Humphrey.

Doug Christopher, consumer products analyst for Crowell, Weedon & Co., said the acquisition is an "isolated incident." Christopher said he saw no "urge to merge" within the consumer products industry, and no pressure "to try to be like the Joneses."  Top of page

graphic


YOUR E-MAIL ALERTS
Consumer Goods
Retail
Mergers - Acquisitions - Takeovers
Unilever
Manage alerts | What is this?