Read the following article.
Source: Financial Times, February 7, 2005
How to make a corporate marriage work
Bringing two companies together is an enormous task. There are grand, big-picture questions that need to be resolved. There are also administrative, logistical and technical challenges.
Roger Pudney of the UK's Ashridge business school says: 'There is often a tendency for companies to relax once the deal is signed, but this is precisely the point at which speed of implementation becomes crucial'. Managers will inevitably be occupied with practical, administrative changes. Yet dealing with the cultural issues in a merger is more subtle and challenging. Managers should recognize cultural differences between the companies. Symbolism matters too. Discussing employees` new working conditions may reassure staff that management has an interest in their well-being.
Talk of a revival in merger and acquisitions activity is on the rise. But marriages succeed or fail in the years following the wedding.
Next steps in making that merger work
P&G in $57bn deal to buy up Gillette
Procter & Gamble yesterday agreed to buy Gillette for $57bn (€44bn) in a deal that could unleash fresh consolidation in the consumer products industry.
The agreed transaction would be the largest in the industry to date.
A.G. Lafley, who has engineered a four-year turnround at P&G and will remain chief executive, said both groups could now grow together 'at levels that neither could sustain on its own'.
Andrew Wood, analyst at Sanford Bernstein, said: 'Adding breadth and depth of product offering should give P&G a competitive advantage in building bigger and stronger partnerships with retailers'.
The companies expect between $14bn and $16bn in cost savings over three years by co-ordinating purchasing and logistics and cutting 6,000 jobs.
The deal, the largest US transaction since JPMorgan bought Bank One, sent Gillette's shares up 12.4 per cent. P&G shares fell 2.4 per cent, a relatively positive investor reception for such a large deal.
P&G will buy back $18bn of its shares over the next 12 to 18 months. It said this essentially meant buying Gillette for about 60 per cent stock and 40 per cent in cash.
Gather more information on the mega-merger of Procter & Gamble and Gillette. (e.g. Financial Times, January 29/30 , 2005).
Find some examples of mergers that were (un)successful. Why did they succeed or fail?
Discuss the 'next steps in making that merger work' (from the article).
What do you think of this example of a mega-merger? What would you have expected?