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P&G-Gillette deal hits further delays

29-Jun-2005

Procter & Gamble's plans to have the Gillette deal sealed by the end of the year may have been scuppered following delays by European regulators and the publication of a report that questions the fairness of the deal, reports Simon Pitman.

As many analysts and industry observers had expected, a number of hurdles have made the path towards the $57 million acquisition far from smooth. But with the shear magnitude of the deal and the impact it is expected to have on the sector, both regulators and politicians in Gillette's home state of Massachusetts are scrupulously assessing every aspect of it.

This week European anti-trust regulators said they are considering an offer to divest certain businesses, thought to be in the dental care category. An Associated Press report said that EU officials had received a proposal that ensured the deal would not cause competition issues in Europe, documentation that the authorities say it will need further time to carefully consider.

The EU had set a deadline of July 1, but now the authorities say that the depth of the investigation means that another 2 weeks will be required, with the possibility that further investigations could last as long as another three months.

Boston-based Gillette had hoped to schedule a shareholder meeting to vote on the acquisition for July 12, but with the European authorities clearly indicating that a decision will not be made before that date, the scheduling is likely to be indefinitely suspended.

Currently no official announcement has been made by Gillette on the vote, but the company is still pressing, some might say a little optimistically, for final shareholder approval before this fall.

Meanwhile Massachusetts Secretary William Galvin continues to question the terms of the acquisition. His claims that the deal undervalues Gillette by as much as $15 billion and that it threatens many livelihoods in the state have now been backed up by the release of a report commissioned by the state securities division and published this week that questions the fairness of the deal.

The report, written by an associate professor, Rajesh Aggarwal, from the University of Virginia, backs up Galvin's claims that the deal seriously undervalues Gillette.

Aggarwal says he used Gillette's internal documents, which pegged merger synergies at between $22 and $28 billion, to highlight the fact that with P&G is publicly declaring that it estimates synergies in the region of $14 to $16 billion. This will be mainly achieved through manufacturing synergies, which will see the loss of thousands of jobs both at the company's Boston headquarters and the company's operations worldwide.

Aggarwal also estimated that Gillette CEO James Kilts stands to gain as much at $143 million out of the deal.

Although Galvin said that he wanted the findings published in time for Gillette shareholders to be made fully aware of the full implications of the deal, a Gillette spokesman told reporters that Galvin was re-issuing a report that has already been published in March of this year.

Further to this, he said that the deal had the support of virtually all financial experts, as well as the backing of the company's largest shareholder and world renowned investor, Warren Buffet, who has called it a "dream deal".

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