Procter bids £31bn for Gillette

WASHING powders to haircare products giant Procter & Gamble is buying razors and battery maker group Gillette for around £31bn in a cash and shares deal that will create the world's largest stable of consumer products.

The deal to merge the US giants will combine such worldwide brands as Gillette's razors -promoted by England football captain David Beckham - Duracell batteries, and Oral B dental products with P&G's Bold and Ariel detergents, Pampers nappies, Pantene hair products and Old Spice aftershave.

P&G expects to make savings of £8bn a year, but around 6,000 jobs - about 4% of a combined 140,000 workforce will go - many of them in middle management. Gillette has three factories in the UK but it is not known whether their workforces will be affected.

The deal, the biggest in the US since JP Morgan Chase bought Bank One for $60bn last year, was unveiled in New York today, creating a powerhouse.

'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 AG 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 marketing capabilities, making it a terrific fit.'

If regulators approve the merger, the combined company will hold formidable bargaining power over retailers and will be able to dictate terms even to the mighty Wal-Mart. It will also eclipse rival Unilever in revenue terms. Gillette chief Jim Kilts will become P&G vice chairman with responsibility for Gillette.

The terms call for P&G to swap 0.975 shares of its stock for each Gillette share. That values Gillette at $53.94 per share, a near-18% premium to yesterday's close.

P&G announced plans to buy back between $18bn and $22bn of its stock within the next 18 months. Billionaire investor Warren Buffett, who owns about 9% of Gillette through his Berkshire Hathaway fund, said he would purchase more stock so that he owns 100m P&G shares by the time the deal closes, expected to be in the autumn. 'This merger is going to create the greatest consumer product company in the world,' Buffett said. 'It's a dream deal.'

Earlier, P&G posted a 12% rise in third-quarter net profit to $2.04bn, comfortably beating Wall Street expectations. The company has been suffering from increased promotional spending and analysts believe the Gillette deal will ease that burden. But the real gain will be increased clout in buying advertising, which costs hundreds of millions of dollars a year at the two firms.

Regulators will expose the deal to tough scrutiny and could force P&G to shed some brands, particularly in oral hygiene products and deodorants. P&G owns Crest toothpaste brands, while Gillette counts Right Guard and Oral-B among its products.

It is not the first time a marriage between the two companies has been considered, with P&G approaching Gillette about a deal in 1999. Gillette rebuffed the moves but, according to US reports, this time round it approached P&G.

Closer to home, the blockbuster takeover can only darken the mood at Unilever as the board frantically puts the finishing touches to a critical results presentation planned for 10 February.

Unilever's Path to Growth drive has quickly become a Path to Disappointment as the consumer brands giant has lost its way despite annual sales of £30bn.

A price war was blamed for a shock profits warning last September and there is now growing speculation Unilever may be forced to dismantle its Anglo-Dutch dual structure.

Some 40% of Unilever's global sales are achieved in places where its products come up against a rival from Procter & Gamble and/or Gillette, so any fresh price cuts by P&G could have huge repercussions. For Unilever and Omo, Signal and Axe, read P&G-Gillette and Ariel, Crest and Sure.

Shares in Unilever were 5p higher at 497p but analysts put that down to a knee-jerk hope for more consolidation in the sector.