Introduction
Procter & Gamble, along with Gillette are companies with a long and interesting history. Both started in the XIX century, and are the largest household goods, manufacturers. The merge of these two giants is a significant and large-scale occasion in the world business sphere. From the point of view of financial experts, it is necessary to emphasize, that the merger of these companies would provide a great monopolization in the sphere of household chemicals, oral care, hair care, and skincare (including blades and razors). On the other hand, Merrill Lynch – the financial expert – explains, that she anticipated essential growth in the sales and income volume after the merge, however, the 6-7 percent growth was lower, than expected (in 2007).
Financial analysis of the company’s performance reveals the fact, that the necessity to adjust the financial managerial structure is rather high, as jointly, these two companies achieved less essential results than while acting separately.
Strategies
The immediate strategy that is required is the total change of financial management structure and hierarchy, as managers from formerly different companies could not get used to the means and methods of work of their colleagues. Consequently, the immediate strategy should be directed to the increase of collective unity. HR policy should be changed essentially, as the new team requires new rules.
The long-range strategy should be directed to the expansion of the existing markets, as it is the key factor of increasing incomes. The fact is that it is impossible to create something new in the sphere of household chemicals. All the upgrades and improvements of technologies (triple blades, tubes of toothpaste with different tastes, various fragrances) have become a common feature of life in the 21st century. Thus, the expansion of the existing markets and the creation (research) of a new audience should become the preferable direction on the long-term strategy.
Executive Summary
The history of the joint company is pictured on the graphs.
This data reveals the necessity of improving the financial management system, as the achieved results stay lesser than expected. It is said, that the stock prices were expected to increase more than 25 percent. Nevertheless, Merrill Lynch had expected a $0,25 – $0,30 fall per share on a stock market. In 2004 Procter & Gamble announced plans, that included acquiring numerous companies, engaged in the production of household detergents and hair care means. However, the results achieved in 2005 did not allow P & G to perform the announced plans.
Cost Prices
The cost prices can not be regarded as too high. This is confirmed by the fact that the transaction value of P & G achieved 47.3 percent of the total for the period of 1994-2004. The manufactured goods of the company are among the most popular in the world, and it signifies, that people choose these goods not only because of quality but also due to comparatively low prices. Though, the fall of the share on the stock market may cause a further increase in the cost prices.
Advantage Deal
The merge of the corporations may be regarded as a real advantage deal, and, the new corporation needs to overcome certain troubles and difficulties, associated with the demerits of the financial management system. Despite the fact, that the company achieved less than it was planned, it is necessary to emphasize that the full potential of the newly created giant has not been revealed yet. The further adjustment of managerial mechanisms will improve the allover performance, and cause the essential growth of the market share, and stock market share prices.
PEST
Political analysis
The political situation in the world is too complex for a brief analysis, however, such actions as US presence in Iraq, location of anti-missile defense systems in Europe make some people boycott American goods, and these actions essentially lessen the share of P & G on these markets.
Economic factors
The world economy can be regarded as stable (for the analyzed period), so, there are no essential outer factors that could prevent the stable and successful development of the company.
Social factors
The social environment generally defines the target audience of any company. The fact is that a stable social environment presupposes the presence of competitors’ goods, while an unstable social environment is often a matter of decreased consuming capacity. P & G, jointly with Gillette is a transnational corporation, so it is necessary to adapt for any society in order to hit the target audience.
Technological aspects
The development of technology and the means of production and manufacturing control simplifies the presence of any company on any market essentially. P & G is not an exception, and there is a great potential for further market expansion due to automated manufacturing.
SWOT
Core Competence
P & G is described as a company, which produces high-quality goods. The core competence of these goods is accessibility, comparatively low prices, and high quality. These features are the reason for huge experience and positive reputation (trust credit) among customers.
Substantial Core
The core of the company is its almost two hundred years of experience and the high accessibility of the goods. The substantial core of the deal is the unification of financial actives. This unification is aimed at the increase of the company’s manufacturing and diversification potentials. As for the influence of such unification, it is necessary to emphasize, that everything depends only on management and the financial situation in the world.
As for the influence of the merge in general, the only fact that is worth attention is the fact of complementarity of both companies.
An important fact that may be added, concerning the merge of the two companies is the price of the deal. $57 billion is the price that represents a 20 percent premium over Gillette’s market capitalization for a week period. This sum is more than three times higher than the P & G’s sum that was assigned for yearly organic growth, and almost three times higher than the yearly sales in the fiscal year 2005 (a year, when the merge was planned to be completed).
Conclusion
The advantage of this deal is rather ambiguous. On the one hand, it offered an opportunity to increase the company’s potential, on the other hand, it appeared to be not too successful. Anyway, there are still more strengths and opportunities, than weaknesses and threats.