Procter & Gamble to buy Gillette

Procter & Gamble is buying razor and battery maker Gillette for about $57 billion (£30.2 billion) in a stock deal that would create the world's largest stable of consumer products, the companies have announced.

If approved by regulators, the deal would combine such brands as Gillette's razors, Duracell batteries, and Oral B dental products with P&G's Tide detergent, Pampers, and Pantene hair products.

The boards of both companies approved the deal yesterday and it was announced in New York overnight.

The transaction calls for P&G to pay about 0.975 of its shares for each share of Boston-based Gillette, which would value the company at about 54 (£28) per share, based on yesterday's closing P&G share price of $55.32 (£29.30).

P&G also plans to buy back $18 billion (£9.5 billion) to $22 billion (£11.6 billion) of its stock during the next year to 18 months, the companies said in a joint announcement. That will ultimately result in the deal being financed through about 60 per cent stock and 40 per cent cash, the companies said.

P&G sales would surge to more than $60 billion (£31.7 billion) annually, from about $51 billion (£27 billion) now. The deal is subject to review by regulators and shareholders of both companies.

Gillette CEO James M. Kilts will become vice chairman of Cincinnati-based Procter &Gamble, and will join its board.

"This combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity," said A.G. Lafley, P&G's chairman, president and chief executive. "Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit."

Among the biggest winners is Berkshire Hathaway Inc., Gillette's largest shareholder, with 96 million shares, or about 93.6 million P&G shares. Berkshire Chairman and CEO Warren Buffett called the combination "a dream deal" and said he plans to own 100 million P&G shares by the time the deal closes, which is expected late this year.

The companies said they expect to save $14 billion (£7.4 billion) to $16 billion (£8.5 billion) in annual costs, and cut about 6,000 jobs as part of the integration. That represents about 4 per cent of a combined 140,000-person work force.

P&G also raised its annual sales target to a range of 5 per cent to 7 per cent, from 4 per cent to 6 per cent previously, based on the Gillette acquisition.

Shares of Cincinnati-based P&G have risen nearly a third since 2003, as the company's strong stable of global brands has powered consistent profits and sales growth. That rise has given the consumer-products behemoth plenty of stock currency to pursue acquisitions.

P&G released its quarterly earnings on Thursday, a day earlier than planned.

The company reported another strong quarter, with a 12-% rise in net income to $2.04 billion (£1.08 billion), or 74 cents (39p) per share, from $1.8 billion (£950 million), or 65 cents (34p) per share, in the same period a year ago. P&G also boosted its profit outlook for the current fiscal year.

Sales rose 7 per cent, to $14.45 billion (£7.6 billion), from $13.2 billion (£6.9 billion) in the comparable period.

For the first six months of P&G's fiscal year, the company earned $4 billion (£2.1 billion) - or 1.47 (77.8p) per share - on sales of $28.2 billion (£14.9 billion). A year earlier, P&G earned $3.6 billion (£1.9 billion), or 1.28 (67.8p) per share, on sales of $25.4 billion (£13.4 billion).

P&G, which makes skin-care products such as Noxema and Old Spice, has not before competed in the battery or shaving markets.

In its most recent quarter, Gillette reported income of $475 million (£251.6 million), up from $416 million (£220.4 million), as more consumers traded up to its pricier M3Power razor and several hurricanes in the South last year boosted battery sales. Gillette also sells Oral B dental care products.

Gillette shares closed at 45.85 (£24.29) yesterday on the New York Stock Exchange, just below the 52-week high of $45.90 (£24.31) they hit during the session.