Procter & Gamble Company (the) · NYSE:PG
Procter & Gamble Company (the) — Merger or Acquisition (January 2005)
48 slides from Procter & Gamble Company (the)'s merger presentation, Jan 28, 2005
Slide 1: Filed Pursuant to Rule 425
Filed Pursuant to Rule 425 Filing Person: The Procter & Gamble Company Subject Company: The Gillette Company Commission File No.: 1-922
Slide 2: The best a man can get
The best a man can get The best a woman can get The best a customer can get The best an investor can get
Slide 3: Clayt Daley, Chief Financial Officer
Clayt Daley Chief Financial Officer • I WANT TO BEGIN WITH AN APOLOGY – FOR THE LAST MINUTE NOTICE, AND FOR ASKING YOU TO JOIN US SO EARLY IN THE MORNING. WE APPRECIATE THE EFFORTS YOU MADE TO BE HERE TODAY. • WELCOME TO THIS MEETING TO ANNOUNCE THE AGREEMENT TO PURCHASE THE GILLETTE COMPANY. • JOIN
Slide 4: Agenda
Agenda Earnings and guidance update The Deal Deal structure and economics Strategic rationale Financial details Integration Q&A’s • FIRST I WILL PROVIDE A VERY BRIEF UPDATE ON P&G’S RECENT BUSINESS RESULTS AND GUIDANCE. • THEN JIM WILL OFFER HIS PERSPECTIVE ON THE HEALTH OF GILLETTE’S BUSINESS AND T
Slide 5: Forward Looking Statement
4 Forward Looking Statement All statements, other than statements of historical fact included in this presentation, are forward- looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition to the risks and uncertainties noted in this release, ther
Slide 6: Regulation G Disclosure
Regulation G Disclosure Sales excluding foreign exchange Organic sales Core earnings • ALSO, AS REQUIRED BY REGULATION G, WE NEED TO MAKE YOU AWARE THAT DURING THE PRESENTATION, WE WILL MAKE A NUMBER OF REFERENCES TO NON-GAAP MEASURES. • FOR COMPLETENESS, WE HAVE POSTED ON OUR WEBSITE - WWW.PG.COM -
Slide 7: December Quarter Results
December Quarter Results Sales growth: +9% Price impact: neutral Mix impact: -1% Foreign exchange impact: +3% Organic volume growth: +8% Operating margin: +50 bps EPS: $0.74 +14% versus year ago 2 cents above consensus • P&G’s MOMENTUM CONTINUES TO BE STRONG • WE DELIVERED ANOTHER QUARTER OF SALES A
Slide 8: December Quarter Results
December Quarter Results All GBUs and regions delivering strong top-line growth Beauty Care, Baby & Family Care leading bottom-line growth Fabric & Home Care investing in new products and geographic expansion to drive strong top-line growth but expect continuing margin pressure from commodities Heal
Slide 9: December Quarter Results
December Quarter Results Billion Dollar Brands portfolio growing volume double digits Growing volume with 9 of top 10 customers All top 16 countries growing volume mid-single digits or better Developing markets growing high teens with strong returns • ….. IS EXPANDING VOLUME DOUBLE DIGITS - WITH 15
Slide 10: Guidance Update
Guidance Update Sales growth estimate: March ’05: high single digits Fiscal ‘05: high single digits EPS estimate: March ’05: $0.60 - $0.62 (+ 9-13%) Fiscal ’05: $2.61 - $2.64 (+13-14%) • AS YOU ARE AWARE, OVER THE PAST 12 MONTHS A NUMBER OF P&G’S KEY COMPETITORS HAVE LOWERED THE BAR WITH REGARD TO T
Slide 11: Jim Kilts
Jim Kilts Chairman, Chief Executive Officer THANKS, CLAYT Good morning, Its great to be here to day on this historic occasion And I do look upon this union, of Gillette and P&G, as more than a great opportunity for growth and value creation for shareholders. I believe it is a unique and historic eve
Slide 12: Gillette Results
Gillette Results CAGR 1998-2001 2002 2003 Jan-Sep ‘04 Net Sales* -1% +5% +9% +11% PFO* -9% +6% +13% +25% Net Income* -8% +13% +16% +26% EPS* -6% +13% +20% +27% * Continuing operations, excludes non-operating items 1998-2001 We have rebuilt the business…and our current share price reflects our progre
Slide 13: P&G - The Right Choice for Gillette
P&G - The Right Choice for Gillette Perfect fit Strong brands Accelerated growth Increased efficiency and shareholder return Extensive Board review But at the same time, there would be clear benefits in combining Gillette with another industry leader. A combined company would provide a stronger lead
Slide 14: Deal Structure and Economics
Deal Structure and Economics Stock deal exchange ratio: 0.975 P&G shares for 1 Gillette share $18 - 22 billion share repurchase program Equivalent to ~60-65% stock and 35-40% cash at end of buy back ~18% acquisition premium ~14 times EBITDA with synergies Fair price for a stable of leading global br
Slide 15: Deal Structure and Economics: Comparable Transactions
Deal Structure and Economics Comparable Transactions Acquisition Synergized Long-term Premium EBITDA Multiple Tchibo - Beiersdorf 51% 17.5 Constellation - Mondavi 50% 13.7 Pepsico - Quaker 22% 13.3 Average 41% ~15 P&G - Gillette 18% ~14 SUCH AS • BEIERSDORF WHICH WAS ACQUIRED BY TCHIBO • MONDAVI WHI
Slide 16: Deal Structure and Economics: Value creation
Deal Structure and Economics Value creation of $14 - 16 billion $10 - 11 billion from cost synergies (~$9.50-$10.50/share) $ 4 - 5 billion from growth synergies (~$3.75-$4.75/share) $14 - 16 billion Allocation of incremental value ~$8.5 billion synergies to Gillette shareholders ($8.09/share) ~$5.5
Slide 17: Deal Structure and Economics: Key milestones
Deal Structure and Economics Key milestones Stock repurchase program begins today Mid April: Mail proxy/S4 Mid May: Shareholder meetings and proxy vote Fall: Closing • THE $18-22 BILLION SHARE REPURCHASE PROGRAM STARTS TODAY. • WE EXPECT TO MAIL OUT THE PROXY SOLICITATION AND S4 REGISTRATION MID APR
Slide 18: AG Lafley
AG Lafley Chairman, President and Chief Executive • THANKS CLAYT. • LAST DECEMBER, WE OUTLINED P&G’S STRATEGIES FOR SUSTAINING GROWTH. WE ALSO DISCUSSED LONG-TERM GOALS FOR SALES, EPS AND FREE CASH FLOW. • TODAY’S ANNOUNCEMENT OF OUR INTENTION TO ACQUIRE GILLETTE IS FULLY CONSISTENT WITH THESE STRAT
Slide 19: Strategic Rationale
Strategic Rationale Combine 2 best-in-class CPG companies with great momentum • THERE ARE FOUR REASONS WHY THIS ACQUISITION MAKES SENSE STRATEGICALLY: • WE ARE COMBINING TWO OF THE LEADING CONSUMER PRODUCTS COMPANIES IN THE WORLD – A COMBINATION THAT LEVERAGES THE STRUCTURAL CHARACTERISTICS OF OUR I
Slide 20: Strategic Rationale
Strategic Rationale Combine 2 best-in-class CPG companies with great momentum Scale, Branding, Margin Innovation Growth • TOGETHER, P&G AND GILLETE CAN GROW AT LEVELS NEITHER COMPANY CAN ACHIEVE AND SUSTAIN ON ITS OWN. • A KEY REASON IS THAT CONSUMER PRODUCTS IS A SCALE BUSINESS. • SCALE DRIVES MARG
Slide 21: Strategic Rationale
Strategic Rationale Combine 2 best-in-class CPG companies with great momentum Strengthen the portfolio - 50% in Health & Beauty $ Sales P&G P&G Combined FY ’98 FY ’03 FY ’05 e 36% 47% 50% Health & Beauty Care +14% pts Balance of Company • SECOND, THE ADDITION OF GILLETTE’S BRANDS ACCELERATES THE EVO
Slide 22: Strategic Rationale
Strategic Rationale Combine 2 best-in-class CPG companies with great momentum Strengthen the portfolio - 21 billion dollar brands and #1 market position in categories representing about two thirds of total Sales • THE COMBINED COMPANY WILL HAVE AN UNMATCHED PORTFOLIO OF 21 BRANDS WITH A BILLION DOLL
Slide 23: Strategic Rationale
Strategic Rationale Combine 2 best-in-class CPG companies with great momentum Strengthen the portfolio - 21 billion dollar brands and #1 market position in categories representing about two thirds of total Sales Strengthen combined retail relationships • THE THIRD REASON THIS ACQUISITION MAKES SENSE
Slide 24: Strategic Rationale
Strategic Rationale Combine 2 best-in-class CPG companies with great momentum Strengthen the portfolio - 21 billion dollar brands and #1 market position in categories representing about two thirds of total Sales Strengthen combined retail relationships Leverage our strengths of branding, innovation,
Slide 25: Strategic Rationale
Strategic Rationale Combine 2 best-in-class CPG companies with great momentum Strengthen the portfolio - 21 billion dollar brands and #1 market position in categories representing about two thirds of total Sales Strengthen combined retail relationships Leverage our strengths of branding, innovation,
Slide 26: Sales Growth Target (ex. FX)
Sales Growth Target (ex. FX) +4% to +6% Share Growth, Whitespace Expansion, New Business Creation 1%-3% 2%+ Market Growth 1% Tack-On Acquisition • RECALL, WE OUTLINED IN DECEMBER HOW WE GET TO OUR 4 TO 6% SALES GROWTH TARGET. • THE COMBINATION OF P&G AND GILLETTE CREATES UPSIDE IN VIRTUALLY EVERY EL
Slide 27: Market Growth Upside
Market Growth Upside Market Growth ’01-’04 ’04-’08* Health & Beauty ~3% 3-4% Household ~2% 1-2% P&G 2-3% 2%+ Gillette 3-4% 3%+ P&G + Gillette 3% 3% * Euromonitor and Company estimates, Constant Prices and FX • FIRST, WE WILL BENEFIT FROM GILLETTE’S PORTFOLIO, WHICH IS MORE CONCENTRATED IN FASTER GRO
Slide 28: Best-In-Class Innovation Programs
Best-In-Class Innovation Programs P&G ~$5 billion retail sales from categories we didn’t play in 4 years ago Gillette ~$5 billion in new product retail sales over past 5 years P&G + Gillette 50% of top ten IRI Innovation Pacesetter* over past 3 years Share Growth, Whitespace Expansion, New Business
Slide 29: Synergistic Capabilities
Synergistic Capabilities Complementary innovation platforms Oral Care (paste - brushes - treatments) Personal Care (male - female) Go-to-market capability (Account management - in-store execution) Developing markets • WHAT’S IMPORTANT HERE IS THAT OUR INNOVATIVE CAPABILITIES, CONSUMER KNOWLEDGE AND
Slide 30: Developing Markets
Developing Markets Market Growth ’01-’04 ’04-’08* Developed ~2% 1-2% Developing ~5% 5-6% Developing Market Sales ~$2.2bn ~$11bn * Euromonitor and Company estimates, constant prices and FX • DEVELOPING MARKETS ARE A SIGNIFICANT OPPORTUNITY, WITH MARKET GROWTH PROJECTED AT 5-6% OVER THE NEXT FIVE YEAR
Slide 31: Organic Sales Growth
Organic Sales Growth Track Record Organic +5% +5%* +3% to +5% 1%-3% Share Growth, Whitespace Expansion, New Business Creation 2%+ Market Growth Past 3 Year Average *Includes FY ’04 consensus estimate • IN SUMMARY, P&G AND GILLETTE HAVE BEEN DELIVERING AT THE TOP END OF THEIR ORGANIC GROWTH TARGETS O
Slide 32: Margin Expansion
Margin Expansion Strong stand-alone margin growth Leveraging additional scale Large cost and growth synergies • THERE IS ALSO CONSIDERABLE UPSIDE POTENTIAL FOR THE BOTTOM LINE. • FIRST, BOTH P&G AND GILLETTE HAVE ROBUST STAND-ALONE MARGIN EXPANSION PLANS IN PLACE TODAY. • SECOND, WE CAN APPLY P&G’S
Slide 33: Balanced, Sustainable Growth Model
Balanced, Sustainable Growth Model Operating Margin Expansion Trend Operating Margin *Based on consensus estimates for FY ’05-06 • IMPORTANTLY, BOTH COMPANIES HAVE A TRACK RECORD AND STRONG CREDIBILITY TO DELIVER PRODUCTIVITY IMPROVEMENTS. • WE’RE CONFIDENT THAT THE COMBINED COMPANIES CAN DELIVER FU
Slide 34: Upside To Sustainable Growth Model Through The End Of The Decade
Upside To Sustainable Growth Model Through The End Of The Decade Sales Growth +5% to +7% Double Digit EPS Growth Upside 2010 Operating Margin of 24 – 25% • IN SUMMARY, WE REMAIN CONFIDENT THAT P&G CAN SUSTAIN GROWTH AT THE LEVELS TO WHICH WE’VE COMMITTED WITHOUT THE ACQUISITION OF GILLETTE. BUT WITH
Slide 35: Clayt Daley, Chief Financial Officer
Clayt Daley Chief Financial Officer THANKS A.G.
Slide 36: Deal Structure and Economics
Deal Structure and Economics Value creation of $14 - 16 billion $10 - 11 billion from cost synergies $ 4 - 5 billion from growth synergies • HERE ARE THE BUILDING BLOCKS OF HOW THIS TRANSACTION GENERATES THE $14 TO $16 BILLION DOLLARS OF INCREMENTAL SHAREHOLDER VALUE. • WE EXPECT $10-$11 BILLION DOL
Slide 37: Cost Synergies $1 to $1.2 Billion
Cost Synergies $1 to $1.2 Billion SG&A ~80% Marketing Purchasing Retail Selling Manufacturing Logistics • WE ANTICIPATE MORE THAN $1 BILLION OF SYNERGIES TO BE ACHIEVED BY YEAR 3. • WE SEE OPPORTUNITIES IN PURCHASING, MANUFACTURING AND LOGSITICS – THROUGH INCREASED SCALE, IMPROVED ASSET UTILIZATION
Slide 38: P&G Synergy Track Record
P&G Synergy Track Record % of Sales* Delivered Tambrands 14% Delivered Clairol 13% Doable Wella 9% Doable Gillette 10-12% *Year 3 synergies as a % of sales at acquisition • TO PUT THE COST SYNERGIES IN PERSPECTIVE, WE’VE ANALYZED THEM VERSUS OUR TAMBRANDS, CLAIROL AND WELLA COMMITMENTS. • AS YOU CAN
Slide 39: 1% Acceleration of Growth
1% Acceleration of Growth Leverage P&G go- to-market capabilities Accelerate growth of Gillette brands in developing P&G technologies markets applied to Gillette brands • SECOND, WE ANTICIPATE TO CREATE $4 - 5 BILLION OF VALUE THROUGH THE 1% POINT ACCELERATION IN GROWTH. A.G. ALREADY TALKED YOU THRO
Slide 40: EPS Impact on P&G
EPS Impact on P&G Cents per Share FY ’06 FY ’07 FY ’08 Gillette earnings 53 60 66 consensus New shares net of (70-75) (75-80) (80-85) buyback Synergy and other 10-12 20-25 30-35 benefits New D&A (intangibles) (5-7) (5-7) (5-7) One time impacts/Other (13-20) (0-5) (0-5) EPS impact on P&G (25-35) (5-1
Slide 41: Gillette Valuation
Gillette Valuation $/Share P&G* 55.32 0.975 of P&G 53.94 Gillette stand-alone* 45.85 Premium 8.09 Premium ~18% *January 27 closing price • AS I MENTIONED AT THE BEGINNING WE ARE PAYING AN 18% PREMIUM ON THE BASIS OF THE AGREED STOCK EXCHANGE RATIO. • IT PROVIDES GILLETTE SHAREHOLDERS WITH A POST DEA
Slide 42: Value Creation for P&G
Value Creation for P&G $Billion $/Share Cost Synergies 10 - 11 9.50 - 10.50 Growth Synergies 4 - 5 3.75 - 4.75 Total Value Creation 14 - 16 13.25 - 15.25 Premium Paid to Gillette (8.5) (8.09) Value Creation for P&G 5.5 - 7.5 5.16 - 7.16 • THE PREMIUM TO THE GILLETTE SHAREHOLDERS IS MORE THAN JUSTIFI
Slide 43: Integration
Integration • WE ARE CONFIDENT WE CAN MANAGE THE INTEGRATION OF THE TWO COMPANIES WHILE STAYING SHARPLY FOCUSED ON THE HEALTH OF BOTH GILLETTE’S AND P&G’S ESTABLISHED BUSINESSES. • THERE ARE THREE REASONS FOR MY CONFIDENCE: • FIRST, WE HAVE COMPLEMENTARY ORGANIZATION STRUCTURES AND SAP SYSTEMS WHICH
Slide 44: Integration
Integration Jim Kilts Confident in synergies plan Personal commitment to deliver THANKS A.G. When we started to evaluate this combination, we saw many obvious synergies. At the core they are driven by having two companies with infrastructures that overlap and products and geographies that are comple
Slide 45: Video: Warren Buffett
video WARREN BUFFETT CHAIRMAN, CEO BERKSHIRE HATHAWAY INC.
Slide 46: The key point you should take away
THE KEY POINT YOU SHOULD TAKE AWAY IS THAT P&G’S ACQUISITION OF GILLETTE MAKES SENSE FOR OUR CONSUMERS, OUR CUSTOMERS, OUR EMPLOYEES AND OUR SHAREHOLDERS. IT IS A UNIQUE OPPORTUNITY THAT WE ARE IN A STRONG POSITION TO CAPTURE AND LEVERAGE. I AM CONFIDENT P&G IS WELL PLACED TO EXECUTE THIS ACQUISITIO
Slide 47: Q&A
Q&A NOW WE WOULD BE HAPPY TO TAKE A FEW QUESTIONS.
Slide 48: Additional Information and Where to Find it
Additional Information and Where to Find it In connection with the proposed merger, The Procter & Gamble Company (“P&G”) and The Gillette Company (“Gillette”) will file a joint proxy statement/prospectus with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ
Procter & Gamble — Merger or Acquisition (January 2005) on 6ix