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January 28, 2005
The largest merger in history - P&G buys Gillette
The largest merger in history took place today. P&G bought Gillette for US$55 billion. Through this, the largest consumer products company in the world was created.
I hope it works out - many times, mergers create unhappy employees, and frequently, unhappy customers, if not handled correctly.
"Data collected over five years as part of the widely respected American Customer Satisfaction Index, reports on customers' perceptions of 28 big companies that were involved in major mergers between 1997 and 2002. It showed that customers were significantly less satisfied on average even two years after the deals closed than they were before."
While commentators say that the deal will strike "fear amongst its competitors", such as Unilever, Colgate and Speed Stick deodorant, and ask them to look for merger partners as well, it is also a time for competitors to get into action. When consumers are unhappy and don't feel served well, companies can get a good many consumers by serving them correctly and attentively.
The merger problem? The integration of IT systems, or distribution system, product lines and finances is not easy, but it is technoloy, mainly. What often gets forgotten is the human factor. In fact, HR department should be involved from the early stages of a merger. Often, it is something that is thought of last, besides the unevitable promised job cuts. They are already planning to cut 6,000 jobs - equivalent of 4% of the total 140,000. This creates fear amongst employees. Often, companies only realise that something goes wrong, when great talent leaves.
The sad part of the whole story? Over the last I don't know how many years, companies became real good in cost cutting and merging. But not necessarily in growing their business. A merger is basically only a way to buy market share, and often not the smartest way to run a business.
Update:
I was thinking about a connection between this merger and the power of Walmart. Walmart's buyers power is too strong to be ignored in this calculation. And right, the New York Times (registering required) highlighted the issue in their recent issue (Jan 29, 2005):
"Procter generates about 17 percent of its annual sales through Wal-Mart, and Gillette about 25 percent, but that still represents less than 10 percent of the discounter's total sales."
And: "A turning point in the relationship between Wal-Mart and P.& G. came in November 2003, when Wal-Mart introduced a detergent similar to P.& G.'s Tide. Called Great Value, the detergent is packaged in a 100-ounce jug, just like Tide, and priced lower than Tide."
Ahhhh - here we go!!
Posted by Andreas at January 28, 2005 07:49 PM
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Comments
u do know it will reduce choice for the consumer , dont u? it will kill smaller competitors and that is not good in any economy to create monopolies. thank goodness very few of these succeed. there appears to be a business law of some kind which determines the optimum size for a business. just like a community, beyond which the returns decrease.
Posted by: anthony wong at January 29, 2005 04:09 PM
Nope Kim - career is only until the next project.
Posted by: Andreas at January 28, 2005 09:26 PM
6000 jobs..that's a lot! hope they skim from the top, otherwise how are the unfortunate ones gonna survive? sheesh...career career career, does it even mean anything nowadays
Posted by: kimberlycun at January 28, 2005 08:21 PM