On February 28th, 2005, Gillette was sold to Procter and Gamble for $57 billion. Gillette is based in Boston and was founded in 1901. It sells products in over 200 countries in 31 manufacturing plants in 14 countries. It is one of the leading manufacturing firms left in Boston. Procter and Gamble are based in Cincinnati, established in 1837 by William Procter and James Gamble and was incorporated in 1905. To date, it has sold more than 300 brands of products in more than 160 countries. Because of the competition in this industry, Procter and Gamble thought it was a good idea to buy out Gillette. They had already noticed that Walmart had the biggest percentage of Procter & Gamble’s revenue (17%) and this would grow to 30% after the merger. Also, there would be a cost savings of $14 to $16 billion a year and a 1% increase in sales growth after the merger.
One of the key issues is that 6,000 employees of Gillette would be losing their jobs. Another key issue is that severance packages from these kinds of mergers have been seen to be too high. For example, when Manulife Financial Corporation merged with John Hancock Financial Services, the Chief Financial Officer from John Hancock, David D’Alessandro, received a package of $16.4 million. When Bank of America bought Fleet Boston Financial Group, Chad Gifford (CFO of Fleet Boston) got $16 million. Now, Gillette’s James Kilts is getting a severance package of $30 million and could earn $172 million in cash and stock. In fact, $50 million of the compensation package was directly tied to the merger. A lot of academics did not agree with this arrangement because they believe it should be tied to the performance of the company and not to the merger. Another issue is that employees of Gillette were already complaining about unfair working conditions and retirees were going to have to pay more for healthcare after the merger.
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