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The merger of proctor & gillette: a strategy no brainer with public policy implications


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THE MERGER OF PROCTOR & GILLETTE: A STRATEGY NO BRAINER WITH PUBLIC POLICY IMPLICATIONS
Raymond M. Kinnunen

Northeastern University

Case Objectives and Use
This case describes the merger between FMCG (Fast Moving Consumer Goods) company Proctor and Gamble and razor giant Gillette. The merger has various advantages from a strategic perspective but also involves risks and has some Public Policy implications for the State of Massachusetts. Implications regarding loss of a number of jobs, a glut of office space , employee retirement benefits, executive compensation, and the value placed on the merger and the due diligence done by the Board of Directors of the Gillette Company are brought forth in the case. At the time of the case, Massachusetts Secretary William Galvin had asked for “copies of any records, minutes, reports or other documentation evidencing the approval of the Gillette board of directors” of the proposed merger agreement. This case is appropriate for courses in business policy, strategic management, and corporate governance at the undergraduate, graduate, and executive levels.
Case Synopsis
Proctor & Gamble Co.'s recently announced $57 billion acquisition of Gillette Co. According to The Wall Street Journal, Gillette chairman and chief executive officer James Kilts will earn more than $153 million if the deal goes through, including gains on his stock options and stock rights, an estimated $23.9 million payment from P&G, and a change-in control payment of $12.6 million. The transaction, which is subject to certain conditions including approval by Gillette's and P&G's shareholders and regulatory clearance, was expected to close in the fall of 2005. Massachusetts Secretary of State William Galvin was closely examining the proposed acquisition of the Gillette Company to determine if shareholders would be well served by the merger. He was also concerned that future Gillette retirees might suffer as they faced diminished medical benefits. In addition, 6,000 layoffs were expected to be among Gillette workers in Boston, where the company had its world headquarters. As a result of the merger, another concern was the impact on the city of Boston regarding the number of empty floors in the 52-story Prudential Building, adding to the city’s existing merger-driven glut of sublease office space. The board of directors had also been challenged by Galvin on the valuation they had placed on the merger.

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The author developed the case for class discussion rather than to illustrate either effective or ineffective handling of the situation. The case, instructor’s manual, and synopsis were anonymously peer reviewed and accepted by the North American Case Research Association (NACRA) for its annual meeting, October 27-29, 2005, North Falmouth, MA. All rights are reserved to the author and NACRA. © 2005 by Raymond M. Kinnunen. Contact person: Raymond M. Kinnunen, Northeastern University, Boston, MA 12115, 617-373-4736, r.kinnunen@neu.edu



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