When Warren Buffett talks, people listen. The superinvestor recently described Procter & Gamble's
This blockbuster deal differs from the garden-variety corporate merger in that neither company will enter the union in a troubled state. On the contrary, they're both in vigorous fiscal health and enjoy dominant market positions as of this writing.
Gillette's reputation for quality and innovation remains undiminished, and its global market share for its shaving products currently stands at over 72%. Robust sales and profits propelled the Boston-based firm to a second straight record-setting year in '04, adding to a turnaround that began four years ago. P&G has undergone a renaissance of its own in recent years, thanks to a couple of smart and well-timed acquisitions -- Wella and Clairol. The Cincinnati-based stalwart boasts a star-studded lineup of products that few companies in any industry can match. Tide, Crest, and Pampers are just a few of its popular household-name offerings.
The two companies' combined annual revenues will be in the neighborhood of $60 billion. It's little wonder why industry watchers and investment analysts hail the impending merger as a marriage made in corporate heaven. (As if to confirm that sentiment, Gillette stock surged immediately following the announcement.) The megafirm's size and global reach should allow it to fully capitalize on opportunities in developing markets, particularly China. It's difficult to see how smaller rivals like Unilever
I agree with those who suggest that a strong fit between the two firms' cultures, products, and marketing strategies will boost the odds of future success. Gillette's wide selection of razors and other products will fuel P&G's recent campaign to step up sales of personal-grooming items. And of course, there's the gender issue: Gillette's flagship products and marketing efforts target a predominantly male audience, while P&G relies more heavily on the female market. The two should complement each other beautifully.
Still, I foresee some inevitable growing pains as a result of this high-profile acquisition, and not everyone will be happy with the changes. It's estimated that some 6,000 Gillette and P&G workers will lose their jobs as the new company strives to cut costs and streamline operations. All in all, though, the merger of these two blue-chip companies should prove to be a winning formula. I expect investors and consumers alike to benefit enormously as the story unfolds.
Fool contributor Robert Allen holds no position in any of the companies mentioned in this article.