History of a merge

In November 2004, Jim Kilts called A. G. Lafley at P&G’s Cincinnati headquarters. Kilts, who had been Chairman and CEO of Gillette for 4 years, was seeking a buyer of the global Boston-based company. Lafley, who had been Chairman and CEO of P&G for over 4 years, was out of the office and had to call him back, unaware of what Kilts was about to propose. Lafley questioned Kilts on three topics. First, what was Gillette’s price? Kilts said he wanted a fair offer.

Not $60 per share, but not $50. ”Jim,” Lafley responded, “I can do the math. Are you thinking Gillette holdings into P&G stock and options and hold them for an agreed period of time. He would also consider staying with P&G for a year after official merger. Finally, Lafley asked about the description of the new culture he helped forge during his turnaround of P&G. “The P&G culture is more collaborative, open, and competitive than you may know it to be,” he said.

Three days later, Lafley met Kilts’s personal office in Rye, New York. They spoke the entire afternoon and agreed to expand negotiations to include select senior managers. At one points , Kilts asked Lafley why he didn’t bring any bankers or lawyers. Lafley said they won’t necessary. Kilts, Gillette CFO Chuck Cramb, and vice chairman Ed DeGRaan met with Lafley and his CFO, Clayt Daley, to work out the merger teams. Culture and tone were major issues for Lafley. we were looking for a collaborative culture,“ he said. “In fact, I decided that we were going to be collaborative in the negotiations. We had a friendly deal here, and there was no reason not to have the cards on the table. ” Lafley called someone that both he and Kilts respected, Rajat Gupta, former managing director of McKinsey, who urged Kilts to give Lafley an open look at potential cost synergies and a peek at Gillette’s planned technological innovations. Kilts agreed.

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But come December 2005, they halted negotiations, realizing that they couldn’t strike an agreement before the upcoming analyst meetings and holidays. Lafley called Kilts back after Christmas. From a strategy standpoint, Lafley considered the acquisition a “no-brainer. ” Both companies would obtain the scale needed to drive the global expansion of its products P&G’s developing market size was five times Gillette’s $11 billion in annual sales versus $2. 2 billion.

Together, the combined entity would include 21 billion dollar brands, 16 from P&G and 5 from Gillette. Gillette’s brands further migrated P&G’s products portfolio toward high-margin beauty, health and personal care categories. The merger would fortify retail customer relationship, especially through the combined knowledge of male consumers, from Gillette, and female buyers, from P&G. And they could leverage respective business strengths, such as Gillette’s trade-up practices and P&G’s go-to-market expertise, to improve growth.

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