1. Is this deal a merger or a consolidation from a legal standpoint? Explain your answer.
2. Is this a horizontal or vertical merger? What is the significance of this distinction from a regulatory perspective? Explain your answer.
3. What are the motives for the deal? Discuss the logic underlying each motive you identify.
4. Immediately following the announcement, P&G’s share price dropped by 2% and Gillette’s share price rose by 13%. Explain why this may have happened.
5. P&G announced that it would be buying back $18 billion to $22 billion of its stock over the 18 months following the closing of the transaction. Much of the cash required to repurchase these shares required significant new borrowing by the new company. Explain what P&G is trying to achieve in buying back its own stock. Explain how the incremental borrowing may help or hurt P&G in the long run.

The potential seemed almost limitless, as the Procter & Gamble (P&G) company announced that it had completed its purchase of Gillette Company (Gillette) in late 2005. P&G’s chairman and CEO, A.G. Lafley, predicted that the acquisition of Gillette would add one percentage point to the firm’s annual revenue growth rate, while Gillette’s chairman and CEO, Jim Kilts, opined that the successful integration of the two best companies in consumer products would be studied in business schools for years to come.