The best a man can get? Retailers fear power of P&Gillette

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The Independent Online

If Procter & Gamble's planned $57bn (£30bn) acquisition of Gillette goes to plan, P&G will become the Wal-Mart of the consumer goods sector: big, scary and miles ahead of its nearest rival.

If Procter & Gamble's planned $57bn (£30bn) acquisition of Gillette goes to plan, P&G will become the Wal-Mart of the consumer goods sector: big, scary and miles ahead of its nearest rival.

It is not as though P&G (one analyst notes that the "G" now stands for Gillette) was small to start with. Analysts estimate that on its own it has an enterprise value (which equals the debt plus equity of a company) of just over $160bn, comfortably the global market leader in consumer goods.

The next largest is Unilever, with an enterprise value of around $70bn. Add Gillette (currently number four in the pecking order), and P&G will be almost three times bigger than Unilever, and making a huge proportion of the toiletries stacked on your local supermarket or chemist's shelves.

It's not just executives at Unilever who will be choking on their Birds Eye fish fingers. Retailers, media owners and consumer groups are all concerned about the implications of P&G and Gillette joining forces.

An enlarged P&G would have even more leverage when it sells goods to retailers. In theory, it could charge more, threatening to withdraw products if stores do not meet its asking prices.

A spokeswoman for the company denied that prices of P&G products would rise. She pointed out that the $15bn of estimated savings could lead to lower prices in the stores and more product innovation, resulting in better goods for consumers. But she admitted that the company has no current plans to cut prices.

The view from the British high street is not so enthusiastic. One retail executive, who did not want to be named, said: "Can you afford not to have their brands on your shop floor?"

David Southwell, a director at the British Retail Consortium, said: "Consumer groups already have incredible power in terms of supply and price. Any move like this would give us some concerns."

These concerns have already reached the new European Competition Commissioner, Neelie Kroes, at the World Economic Forum in Davos. She said European regulators were in "close co-operation with our American friends".

Asked if the companies would have to make concessions to get regulatory approval, she added: "It's too risky to say whatever."

Media buyers were relatively sanguine - in public at least - about the implications for the ad industry of the world's biggest advertiser becoming even more powerful. That's not altogether surprising, since those agencies not already on P&G's books would love to get on them. It's more worrying for the media owners, the newspapers and broadcasters which rely on ad revenues and risk being held to ransom by such a large advertiser being able to dictate lower rates.

Media companies in the UK can hardly cry foul, as they have been busily consolidating in the past year, prompting advertisers to complain that they could face higher rates as a result. Nevertheless, one media buyer at a large international agency said it was unlikely that a bigger P&G would be able to command significantly lower rates, as other advertisers would soon complain if they had to pay more.

Excitement about the take-over is not confined to the two companies (P&G's press office helpfully devised an "Answers and Questions" cribsheet to deal with journalists' queries; it begins with the question, "Why is this deal a good idea?"). Warren Buffett, the American investment guru and Gillette's largest shareholder, said: "It's a dream deal." Investment banks Merrill Lynch, UBS and Goldman Sachs will share around $70m in fees for advising on the deal, so they are happy too.

Provided the Gillette deal is not blocked on competition grounds, more consolidation will follow as P&G's rivals scrabble to play catch-up. Ann Gillin-Lefever, an analyst at Lehman Brothers, said: "We do believe this is the first combination, with more to come."

Watch this space: the consumer goods sector could soon get even more cut-throat.

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