Case Study $1-1.$ Procter & Gamble Acquires CompetitorProcter & Gamble Company $($P&G$)$ announced, on January $28,2005,$ an agreement tobuy Gillette Company $($Gillette$)$ in a share$-$for$-$share exchange valued at $$55\mathrm{.}6$ billion.This represented an $18$ percent premium over Gillette's preannouncement share price.P&G also announced a stock buyback of $$18$ to $$22$ billion, funded largely by issuingnew debt. The combined companies would retain the P&G name and have annual$2005$ revenue of more than $$60$ billion. Half of the new firm's product portfolio wouldconsist of personal care, health$-$care, and beauty products, with the remainder consistingof razors and blades and batteries. The deal would be expected to dilute P&G$\text{'}$s $2006$carnings by about $15$ cents per share. To gain regulatory approval, the two firms wouldhave to divest overlapping operations, such as deodorants and oral care.P&G is often viewed as a premier marketing and product innovator. Consequently, some of P&G$\text{'}$s R&D and marketing skills in developing and promoting women's per$-$ sonal care products could be used to enhance and promote Gillette's women's razors. Gillette is best known for its ability to sell an inexpensive product $($e$.$g$.,$ razors$)$ and hook customers to a lifetime of refills $($e$.$g$.,$ razor blades$).$ Although Gillette is the number $1$ and number $2$ supplier in the lucrative toothbrush and men's deodorant markets, respectively, it has been much less successful in improving the profitability of its Duracell battery brand. Despite its number $1$ market share position, it has been beset by intense price competition from Energizer and Rayovac Corp., which generally sell for less than Duracell batteries.Suppliers such as P&G and Gillette have been under considerable pressure from the continuing consolidation in the retail industry due to the ongoing growth of Walmart and industry mergers, such as Sears and Kmart. About $17$ percent of P&CG$\text{'}$s $$51$ billion in $2005$ revenues and $13$ percent of Gillette's $$9$ billion annual revenue came from sales to Walmart. Moreover, the sales of both Gillette and P&G to Walmart have grown much faster than sales to other retailers. The new company would have more negotiating lever$-$ age with retailers for shelf space and in determining selling prices, as well as with its own suppliers, such as advertisers and media companies. The broad geographic presence of P&G would facilitate the marketing of such products as razors and batteries in huge developing markets, such as China and India. Cumulative cost cutting was expected to reach $$16$ billion, including layoffs of about $4$ percent of the new company's workforce of $140,000.$ Such cost reductions would be likely to be realized by integrating Gillette's deodorant products into P&G$\text{'}$s structure as quickly as possible. Other Gillette product lines, such as the razor and battery businesses, would be expected to remain intact.P&G$\text{'}$s corporate culture is often described as conservative, with a "promote$-$from$-$ within" philosophy. While Gillette's CEO would become vice chairman of the new company, it is unclear what would happen to other Gillette senior managers in view of the perception that P&G is laden with highly talented top management. Obtaining regulatory approval requires divesting certain Gillette businesses that, in combination with P&G$\text{'}$s current busi$-$ nesses, could have given the new firm dominant market positions in certain markets.