Procter & Gamble Company Merger Case Study

Published Date: 01 Mar 2018

The project deals with the analysis of mergers and acquisitions in an FMCG sector. Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced within a year. A merger is the combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. This project deals with the merger of Procter & Gamble and Gillette, acquisition of Balsara's hygiene and home product by Dabur and Acquisition of Nihar brand from HLL by Marico.

The methodology deals with the various ways in which the data for this project was collected. Due to the limited scope of information and time constraints, secondary and not primary data sources has been used including journals, articles, reference sites, etc. The project guide proved very vital in the successful completion of my report.

The next section deals with the individual introduction of both companies involved in the process of merger. It further includes the different terms of the merger and various synergies created through the merger. Furthermore the next section deals with scenario after the merger and analysis of financial statements of acquiring company post merger.

Building a brand from scratch in the FMCG space can be quite an expensive exercise. Mature categories such as personal care or household products are already dominated by one or two strong incumbents and wresting market share away from them is quite a challenge. With growth rates in markets such as skin care, hair care and household products suddenly moving into high gear, companies also cannot afford to lose time on the trial-and-error method that usually accompanies new launches.

Given this scenario, domestic players seem to view brand acquisitions and mergers as the quickest way to step into new categories and acquire a well-rounded product basket, without squandering their surpluses on brand-building expenses. Market shares apart, many of the buyouts have been motivated by the need to acquire better distribution reach whether within India or overseas.

Introduction

I. MERGER

A merger is the combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. A merger occurs when two or more companies combines and the resulting firm maintains the identity of one of the firms. One or more companies may merge with an existing company or they may merge to form a new company. Usually the assets and liabilities of the smaller firms are merged into those of larger firms. Merger may take two forms-

1. Merger through absorption
2. Merger through consolidation.

Absorption:

Absorption is a combination of two or more companies into an existing company. All companies except one lose their identity in a merger through absorption.

Consolidation:

A consolidation is a combination if two or more combines into a new company. In this form of merger all companies are legally dissolved and a new entity is created. In consolidation the acquired company transfers its assets, liabilities and share of the acquiring company for cash or exchange of assets.

II. ACQUISITION

A fundamental characteristic of merger is that the acquiring company takes over the ownership of other companies and combines their operations with its own operations. An acquisition may be defined as an act of acquiring effective control by one company over the assets or management of another company without any combination of companies.

III. TAKEOVER

A takeover may also be defined as obtaining control over management of a company by another company.Merger of Procter & Gamble Company and Gillette CompanyAbout the merging companies:

Procter & Gamble

Procter & Gamble Company

is asoap opera. P&G was named 2008 Advertiser of the Year by Cannes International Advertising Festival.

Effective July 1, 2007, the company's operations are categorized into three "Global Business Units" with each Global Business Unit divided into "Business Segments" according to the company's March 2009 earnings release.

• Beauty Care
• Beauty segment
• Grooming segment
• Household Care
• Baby Care and Family Care segment
• Fabric Care and Home Care segment
• Health and Well-Being
• Health Care segment
• Snacks, Coffee, and Pet Care segment

P&G has gone into an aggressive mode. It has launched two new variants on 2nd Dec 2009, one in the detergent segment, which is called 'Tide Naturals' and also another one in skin care segment under the 'Olay' brand.

Gillette Company

The Gillette Company is a globally focused consumer products marketer that seeks competitive advantage in quality, value-added personal care and personal use products. It is the world leader in the men's grooming product category as well as in certain women's grooming products. Although more than half of company profits are still derived from shaving equipment--the area in which the company started--Gillette has also attained the top spots worldwide in writing instruments (Paper Mate, Parker, and Waterman brands) and correction products (Liquid Paper), toothbrushes and other oral care products (Oral-B), and alkaline batteries (Duracell products, which generate almost one-fourth of company profits). Gillette maintains 64 manufacturing facilities in 27 countries, and its products are sold in more than 200 countries and territories, with more than 60 percent of sales occurring outside the United States.

The Merger:

On October 1, 2005, Procter & Gamble finalized its purchase of The Gillette Company. As a result of this merger, the Gillette Company no longer exists. Its last day of market trading - symbol G on theOral-B, among others, which have also been maintained by P&G.

The Terms of the Merger:

Date of merger:

The merger came into effect from July 1st, 2007.

The new company formed

: The Gillette Company's assets were initially incorporated into a P&G unit known internally as "Global Gillette". In July 2007, Global Gillette was dissolved and incorporated into Procter & Gamble's other two main divisions, Procter & Gamble Beauty and Procter & Gamble Household Care. Gillette's brands and products were divided between the two accordingly.

The Share Swap Ratio

: Under the deal announced, Procter & Gamble will pay 0.975 share of its common stock for each share of Gillette common stock. On Wall Street, shares in Gillette closed up nearly 13%, while P&G slid 2.1% after the announcement.

The Management:

Gillette's chief executive James Kilts is to join the board of the merged company, becoming P&G vice chairman, while P&G chief executive A.G. Lafley will remain chief executive of the merged company.

Examining the merger:

Type of merger:

Procter & Gamble being number one in consumer products went into acquiring and merging with other companies like, Germany's Wella AG hair care line in 2003 and it also acquired Clairol for its hair-care lines and Iams Co. for its pet foods. The merger in question; between Procter & Gamble and Gillette is thus a merger where the acquiring company is expanding in size of operations and also product offerings. This is thus a

horizontal merger.

Operational Synergies of the merger:

The merger of the two companies will create "the world's largest consumer products conglomerate." Both companies are strong, diversified companies, so one wonders what uncaptured synergies there could be here. P&G is adept at taking innovations from one product and transferring it to another product, so there may be opportunities to improve existing Gillette products. In addition, the companies are stating that the merger will give them more negotiating power with the most powerful buyer of consumer products. The deal would give the company even more control over shelf space at the nation's retailers and grocers, real estate that is at a premium. Executives at the companies said they believe they'll both be able to grow faster together than separately, with P&G opening doors for Gillette in markets such as China and Japan while Gillette bringing P&G some product segments that are growing faster than the company's overall current portfolio of products.The merger will make P&G the world's biggest household goods maker, pushing Unilever into second place

Financial Synergies:

The merger would create a company with revenues of more than Rs.2700 billion that would have even greater clout against mass-market retailers like Wal-Mart Stores Inc., which have been pressuring consumer product suppliers to keep costs low. Because of expectations from the deal, P&G raised the annual revenue growth outlook to 5 to 7 percent, rather than its earlier target of 4 to 6 percent. The companies said they expected cost savings and synergies of about Rs.630 billion to Rs.720 billion US over three years. P&G and Gillette's combined market capitalization of about Rs 8325 billion US, would be by far the largest in the FMCG sector.

HR Synergies:

As part of the cost-cutting that would follow the deal, the merger would result in the elimination of about 6,000 jobs, or 4 percent of the combined work force of about 140,000. It said most of the cuts would come from eliminating management overlaps and consolidation of business support functions. Gillette's chief executive James Kilts is to join the board of the merged company, becoming P&G vice chairman, while P&G chief executive A.G. Lafley will remain chief executive of the merged company.

Scenario Post Merger:

Procter & Gamble is the world's largest producer of household and personal products by revenue, with its products reaching 4 billion people worldwide and its product line includes 23 brands across beauty, healthcare, and food including Tide detergent, Pampers diapers, and Gillette razors, that generate over $1 billion in revenue annually, with the company's total revenue at Rs.3555 billion in 2009.In 2005, P&G expanded its portfolio to include razors and blades as well as batteries with its acquisition of the Gillette Company.The company's 2010 first quarter net income fell 1% to Rs.148.95 billion (Rs.46.35 per share) as higher prices offset lower sales volumes and foreign exchange effects, beating analyst expectations of Rs.43.65 per share. Revenue fell 6% to Rs.891.45 billion, though organic sales rose 2%.

One of the key areas of growth for the company is in emerging markets worldwide. Sales in developing nations have increased steadily from 20% of total revenue in 2002 to 32% in 2009.P&G already owns large and growing market share in countries includingglobal economic downturn, P&G has announced it will focus its growth strategy on emerging markets, opening almost all of its 20 new manufacturing facilities outside its established markets.

Procter & Gamble attempts to maintain its competitive edge by focusing on product innovation. To this end, P&G spends almost twice as much on research and development spending Rs.90 billion in 2009 as its closest competitor, Unilever, spent about Rs.58.5 billion USD in 2008.Through its"Connect + Develop"initiative, P&G looks to bring in new product ideas from outside the company. Connect + Develop has led to the development of 42% of new P&G products in recent years.

In fiscal 2009, P&G's Net sales fell 3% to Rs.3555 billion driven by a 3% decline in unit volume and a 4% decline in net sales from the rising US dollar. Organic sales, a closely watched figure which excludes the impact of acquisitions, divestitures, andforeign exchange, increased 2%, which is below its target organic sales range of 4-6%.Earnings for fiscal 2009 increased 11% to Rs.603 billion.

In July 2009, CEO A.G. Lafley stepped down from his post after 29 years with Proctor & Gamble.He was succeeded by current COO Bob McDonald.The company expects sales to be up 0 to 3% in fiscal 2010,with sales back up in the fall of 2009, fed by price cuts, new products, and value-focused promotions.

P&G divides its business into three

Global Business Units

(GBUs) that develop and produce products and its corporate group which handles the operation and administration of the company.

• Beauty (33% of 2009 sales, 36% of 2009 net income):

  The Beauty GBU includes all hair and skin products, medications, razors, electric shavers, and batteries. This business unit includes several product lines acquired when the P&G bought consumer products company Gillette in 2005. Proctor & Gamble's global market share in blades and razors is 70%, primarily centered on its Mach3, Fusion, Venus, and Gillette brands.In June 2009, P&G further expanded its men's grooming business with the acquisition of the high-end shaving company "The Art of Shaving" and the men's skin care line Zirh.

  Health and Well-Being (21% of 2009 sales, 24% of 2009 net income):

  The Health and Well-Being GBU provide oral care, feminine health, pharmaceuticals, snacks, coffee, and pet care products. In oral care, the company has the number two market share position at 20% globally.In potato chips, the company's Pringles brand holds a market share of approximately 10%.

  Household Care (46.8% of 2009 sales, 43% of 2009 net income):

  The Household Care GBU manufactures a wide range of products from laundry detergent to diapers. The company's baby care market share in 2008 was 29%.

  Post mergersegment wise information of Procter & Gamble Company
  	Net Sales (Rs. M)	% Total Sales	Net Earnings (Rs. M)	% Total Earnings	Sales Growth from 2008	Billion-Dollar Brand(s)
  Beauty	845505	23.6%	113895	22%	-3.72%	Head & Shoulders, Olay, Pantene, Wella
  Grooming	339435	9.5%	67140	13%	-8.61%	Gillette, MACH3, Braun, Fusion
  Health Care	613035	17.1%	109575	22%	-6.55%	Actonel, Always, Crest, Oral-B
  Snacks, Coffee, and Pet Care	140130	3.9%	10530	2%	-35.82%	Iams, Pringles
  Fabric and Home Care	1043370	29.1%	136440	27%	-2.71%	Ariel, Dawn, Downy, Tide, Duracell, Gain
  Baby and Family Care	634635	17.7%	79650	16%	1.48%	Bounty, Charmin, Pampers
  Corporate	-59805	-1.7%	-9045	-2%	-6.74%
  TOTAL	3588660	99.1%	508185	100%	-4.50%	23 brands over $1B

  Business Growth and Divestitures

  Folgers Sale

  On June 4, 2008, P&G sold its Folgers coffee unit toJ.M. Smucker Companyfor Rs.132.75 billion.As part of the deal, P&G shareholders will receive a 53.5 percent stake in Smuckers and the company will assume Rs.15750 million of Folger's debt.

  Gillette Acquisition

  Procter & Gamble acquired Gillette in 2005 for over Rs.2250 billion in its largest acquisition to date. In 2004, the last full year before the acquisition, Gillette generated over Rs.450 billion in sales, about Rs.270 billion of which came from razors and Duracell and Braun products and the remainder sourced from the Oral-B brand, which was moved into the Health & Well-Being segment. A key piece of the acquisition beyond Gillette's product lines was its distribution network and supply chain. Gillette's distribution network and supply chain in emerging markets had been extremely successful for Gillette and, once acquired, has worked to complement P&G's own distribution network.

  Sale of Pharmaceutical Unit

  In 2009 P&G sold its pharmaceutical unit to Warner Chilcott Plc for Rs.139.5 billion in cash.The company expects to book a 43 cent per share earnings boost in Q2 of fiscal 2010 as a result of the sale.The deal allows P&G to focus on its personal care, beauty, and household product divisions. In 2006, the company started winding down its discover-phase pharmaceutical products in favor of licensing late-stage compounds, and announced in 2008 it would exit the drug industry entirely.

  PG 2008 Net sales by Geographic Region(Post merger)

  P&G has a well-established market presence in developed countries such as the United States and Western Europe and is looking to its presence in emerging markets. In fiscal 2009, 32% of total net sales came from developing nations,a figure that has increased steadily from 2002 when sales in developing nations accounted for only about 20% of total revenue (approximately Rs.360 billion).

  In China and Russia, P&G's market share has been consistently increasing in the past five years as Procter & Gamble has put an increased emphasis on establishing its products in those markets. In 2008, the company's distribution network reached 800 million people in China and 80% of the population in Russia. P&G has created products designed specifically to target developing nations. The average Mexican spends about Rs.9000 a year on P&G products, Chinese per-capita spending is only about Rs.135 and India per-capita spending Rs.45.Increasing sales in China and India to the levels in Mexico would add Rs.1800 billion in sales to the company's overall revenue.

  Research & Development focuses both inside and outside the company

  In 2009, P&G spent approximately Rs.91.8 billion on Research & Development, nearly Rs.45 billion more than its closest competitor, Unilever.The two most important factors in P&G's innovation process are its practice of consumer demand research and its "Connect and Develop" R&D structure. First, when entering new markets, P&G sets up in-home visits with consumers in order to fully understand the needs and desires consumers have for household and personal products. This way, P&G gets directly to its customers and is able to cater to their needs. P&G also incorporates consumers' input into the R&D process through its "Connect and Develop" initiative. Through "Connect and Develop" P&G has an online interface set up where people can submit product ideas and provide input on topics that P&G places on the web-portal. P&G staff then sorts through the ideas and work with the most promising ones. This process is not responsible for the entire R&D that P&G does, but approximately 42% of new products in the last several years were influenced by or originated from "Connect and Develop.

  Tide Stain Release, a stain-removing detergent released in July 2009, has garnered 10% market share in the US as of November 2009.The Bounce Dryer Bar, an automatic laundry freshener released in August 2009, has captured 7% of the North American fabric sheet market as of November 2009.

  Commodity Prices

  A diversified consumer products manufacturer, P&G depends heavily on a wide basket of global commodities for manufacturing its goods, the prices for which have risen nearly 50% since 2002. Nearly half of the company's cost of goods is directly related to commodity goods. The company has increased prices due to higher costs of oil and other raw materials. In its conference call, the company stated that it expected raw material costs to increase Rs.135 billion in 2009.The company has raised prices on Cascade dishwashing detergent, Iams pet food, and Gillette razors to counter the increasing cost of oil in the first half of 2008.P&G instituted broad price adjustments in Q1 2010 to close widening price gaps in several businessesincluding North American laundry, tissue, andtowel, and several Eastern European markets.

  Competition

  Procter & Gamble provides the broadest and biggest portfolio of products in the household and personal care industry with 24 billion-dollar brands. P&G generates 43% more revenue than its closest competitor,L'Oreal, and Reckitt Benckiser.

  Procter & Gamble Competitors(2006-2007)
  	Revenue (Rs. M)	Net income (Rs. M)	Operating Margin	R&D Spending (Rs. M)	R&D as % of Total Revenue	Revenue Growth from 2006/2007*	Major Brands/Products
  Procter & Gamble	3757635	543375	20.46%	100170	2.67%	9.00%	Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette, Duracell
  Unilever NV (UN)	2632860	270990	13.05%	56880	2.16%	1.37%	AXE, Lipton, Slim-Fast, Vaseline, Dove, Ben & Jerry\'s
  Clorox Company (CLX)	237285	20745	13.14%	4995	2.11%	8.79%	Clorox Laundry Bleach, Pine-Sol Cleaner, Glad Plastic Bags, Brita Water Filters
  Kimberly-Clark (KMB)	821970	81990	14.32%	12465	1.52%	9.07%	Huggies Diapers, Kleenex Tissue, Scott Paper Towels
  Colgate-Palmolive Company (CL)	620550	78165	19.24%	11115	1.79%	12.68%	Colgate Toothpaste, Colgate Toothbrushes, Irish Spring Soap, Palmolive Soap, SpeedStick Deodorant
  L'oreal (LRLCY)	1117890	174150	20.21%	36675	3.28%	8.06%	Garnier Fructis, L\'Oreal Paris, Maybelline, Ralph Lauren

  Here are somekey factsabout the two firms.

  1. Cincinnati-based Procter & Gamble was established in 1837 and made its name selling soap and candles to U.S. government soldiers during the civil war.
  2. Boston-based Gillette spends around Rs.2700 million annually on advertising.
  3. In May the razor-maker paid a reported 40 million pounds (Rs.3393 million) to sign international soccer star David Beckham to a three-year deal as its global face.
  4. Procter & Gamble employs a workforce of 110,000 worldwide and has a market capitalization of Rs.6345 billion. Gillette employs 29,400 employees worldwide and has a market capitalization of Rs.2025 billion.
  5. Gillette's profit beat market expectations last October after Hurricane Ivan spurred the buying of Duracell batteries.

  Limitations:

  Due to lack of data the financial statements analysis of Procter & Gamble was not carried out.

  Conclusion

  Thus the acquisition and integration of Gillette was the largest and most successful in the history of Procter & Gamble. P&G acquired Gillette, which is best known for its shaving products, in 2005 for Rs.2565 billion. The merger between Procter & Gamble and Gillette is a horizontal merger where the acquiring company is expanding in size of operations and also product offerings. The merger created various synergies like financial, operation and human resource synergies. After the merger Procter & Gamble integrated systems in 26 countries, spanning five geographic regions, representing about 20% of sales. Gillette is a catalyst that makes P&G a better brand-builder and a stronger innovation leader. There is no doubt that P&G and Gillette are stronger together than alone, and both the companies together can deliver accelerated growth targets over the balance of the decade. Acquisition of Balsara'shygiene and home product by Dabur

  About the merging companies:

  Dabur Company

  Dabur India Limitedis the fourth largest FMCG Company in India and Dabur had a turnover of approximately Rs.2,834 Crore & Market Capitalisation of over Rs 10,000 Crore, with brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. The company has kept an eye on new generations of customers with a range of products that cater to a modern lifestyle, while managing not to alienate earlier generations of loyal customers. Dabur has global presence in 50 countries; products are available in the markets of Middle East, South-East Asia, Africa, the European Union andAmerica.

  Dabur is an investor friendly brand as its financial performance shows. The company's growth rate rose from 10% to 40%. The expected growth rate for two years was two-fold. There's a great sense of responsibility for investors' funds on view. This is a direct extension of Dabur's philosophy of taking care of its constituents and it adds to the sense of trust for the brand overall.

  The company, through Dabur Pharma Ltd. does toxicology tests and markets ayurvedic medicines in a scientific manner. They have researched new medicines which will find use in O.T. all over the country therein opening a new market. Dabur Foods, a subsidiary of Dabur India is expecting to grow at 25%. Its brands of juices, namely, Real and Active, together make it the market leader in the Fruit Juice Category. Dabur Ranked AmongIndia's Most Trusted Brands of 2007 By Economic Times-Brand Equity.

  Products of Dabur

  Ø Under

  health care

  products it has brands like Hajmola, Pudin Hara, Dabur Chyawanprash, Glucose D, Dabur Lal tail,etc.

  Ø In

  home care

  range consist of product like Odinil,Odomos,odopic,etc.

  Ø Under

  personal care

  range it has product like Vatika,Gulabri,Dabur Red Toothpaste,etc.

  Ø In

  food range

  it has brands like Real Active ,HOMMADE-range of ready made pastes, soups, coconut milk & tomato puree

  Ø Dabur has guar gum plant,a natural gum used in foods & industrial applications.

  Ø Dabur also produces ayurvedic medicines.

  Balsara Company

  The Balsara Group manufactures and markets its products, in India and Internationally. The Group has a domestic annual sales turnover of Indian Rs. 2 billion, and a rapidly growing international sales turnover of Indian Rs. 350 million. The Group is professionally managed, with manufacturing, sales, distribution and administrative facilities located throughout India, in addition to its international operations.

  In the Indian market, 60% of the Balsara Group's sales turnover of Indian Rs. 2 billion comes from Personal Hygiene Products (Promise, Babool and Meswak oral care ranges) and 40% is derived from Household Products (Odomos insect repellents, Odonil Air Fresheners, Sani Fresh toilet cleaners and Odopic dish washing products). Balsara has a wide national sales and distribution system that makes products available in 10, 54,000 retail outlets. The system is supported by a distribution network of 4 Zonal Offices, 13 Branches, 24 Regional Warehouses, and 1700 Distributors in 1500 towns.

  The mission of the Balsara Group of Companies is to be a leading provider of superior quality personal and household products, ingredients and packaging materials to consumers and customers on the Indian sub-continent and throughout the world.

  The Acquisition:

  On January 27, 2005 Dabur India today announced the acquisition of Balsara Hygeine and Home Care businesses for Rs. 143 crores and said it would look at more buyouts to capitalise on the consolidation in the sector.

  The company board of Dabur approved the acquisition of controlling stake in three Balsara group companies Balsara Hygiene Products, Balsara Home Products and Besta Cosmectics. With the acquisition of the Rs. 143-crore Balsara Group in an all cash deal, Dabur India will have oral care brands such as Promise, Babool, Meswak; mosquito repellents such as Odomos and household products such as Odonil and Odopic under its fold.

  Dabur India will acquire the entire promoters' stake in the three companies 99.4 per cent in Balsara Hygiene, 100 per cent in Balsara Home Products and 97.9 per cent in Besta Cosmetics.

  The Terms of the Acquisition:

  Date of the acquisition:

  The merger came into effect from 1st April 2006.

  The new company formed

  : According to the deal Dabur will take full control of Balsara's entire brand portfolio which consists of oral care brands like Promise, Babool, Meswak; mosquito repellants like Odomos and household products like Odonil, Odopic. The deal also includes takeover of Balsara's operations consisting of three manufacturing facilities at Kanpur, Silvassa and Baddi and about 600 employees. Dabur India will also acquire the entire promoters' stake in the three companies 99.4 per cent in Balsara Hygiene, 100 per cent in Balsara Home Products and 97.9 per cent in Besta Cosmetics.

  The Share Swap Ratio

  : Under the deal announced, Dabur India Ltd will acquire Balsara's hygiene and home product businesses in an Rs 143 crore all-cash deal. While Rs 120 crore will be funded through internal accruals, the balance Rs 23 crore will be raised through debt.

  Examining the Acquisition:

  Type of merger:

  The Rs 1,300-crore fast-moving consumer goods major Dabur India acquired Mumbai-based Balsara Hygiene and Home Products in an Rs 143 crore all-cash deal. The merger in question; between Dabur India and Balsara is thus a merger where the acquiring company is expanding in size of operations and also product offerings. This is thus a

  horizontal merger.

  Operational Synergies of the merger:

  Dabur claimed that the deal would help the combined business to leverage synergies in marketing, sales, distribution and procurement. It will further mark Dabur's diversification in the homecare category currently dominated by multinationals like Reckitt Benckiser and Hindustan Lever Ltd. The proposed acquisition will also strengthen Dabur's oral care segment in the mainstream white toothpaste market dominated by HLL and Colgate. The problems at Balsara were limited resources, inappropriately deployed; and no benefits of scale. There were several other problems. Wastage was costing Balsara close to Rs 3 crore (Rs 30 million) every year; there were no standard operating procedures for process or finished good checking; and quality control was lax. Even the factory layouts were sub-optimal: too many buildings, leading to waste of power and man and materials movement. After the merger changes were quickly introduced. Decisions about Balsara's three plants at Silvassa (Dadra & Nagar Haveli), Kanpur (Uttar Pradesh and Baddi (Himachal Pradesh) was taken by the management team of Dabur India.

  Kanpur was converted into a C&F agency; Silvassa now manufactures mainly for Balsara's private label business and Dabur International, taking advantage of its proximity to ports. Even at Baddi some capital investments were put on hold while quality and sourcing were upgraded. The biggest overhaul was in the purchasing strategy previously, critical raw materials such as sorbitol and calcium carbonate were purchased through direct negotiations. Dabur introduced e-sourcing at Balsara, extending the Ariba system of reverse auction it uses to Balsara as well. The result has been that procurement costs have dropped by 6-7 per cent. In fact, the scale benefits from combining procurement and manufacturing processes have helped both outfits. The decision was taken to aggregate the smaller business into Dabur's infrastructure, suitable modifications were also necessary. Dabur's original distribution was along two verticals: Line 1 for health care and Line 2 for personal care. Now, with new product portfolios coming in, a third line was created that looked afterhome care and all oral care (including Dabur's range) products. For instance, the Dabur combine now accounts for 11 per cent of the demand for toothpaste tubes, up from 4 per cent pre-acquisition.

  Financial Synergies:

  In 2003-04, Balsara had reported sales of Rs 200 crore (Rs 2 billion), with losses of over Rs 8 crore (Rs 80 million). By the following year, turnover had plunged to Rs 150 crore (Rs 1.50 billion), while losses had escalated to Rs 30 crore (Rs 300 million). Dabur wasn't looking for immediate returns on its investment; the blueprint called for breakeven after a year, aiming for sales of Rs 180 crore (Rs 1.80 billion). Balsara Home Products recorded a net profit of Rs 1.1 crore (Rs 11 million) in the first quarter of FY06. Compared to the first quarter of the last financial year, turnover increased almost 52 per cent, from Rs 28.5 crore (Rs 285 million) to Rs 43.3 crore (Rs 433 million). Balsara's oral care range grew 32 per cent compared to last year, while the home care division registered more than 120 per cent growth. The toothpaste portfolio grew at an impressive 33 per cent. Overall, the home care category continues to be one of the strong growth drivers for the company. After the merger the international business grew 36 per cent, while domestic business grew 11 per cent.

  HR Synergies:

  The biggest issue after the acquisition was,of course, people. Dabur already had 2,300 people on its rolls, while Balsara had 600. Given that the new structure didn't have room for duplication something, obviously, had to give. Dabur didn't retrench anybody, but close to 300 people have quit since January. A number of people quit citing locational constraints Balsara is a Mumbai-based company, while Dabur is headquartered at Sahibabad, near Delhi. Still, some areas were integrated smoothly. Balsara's R&D team was seamlessly absorbed into the larger organisation while Dabur had no experience in home care, making that division's contribution invaluable, the oral care research division possessed skills that complemented Dabur's own team. The manufacturing facilities didn't pose too many problems, either it helped that neither organisation is unionized. Decisions about Balsara's three plants at Silvassa (Dadra & Nagar Haveli), Kanpur (Uttar Pradesh) and Baddi (Himachal Pradesh) were taken easily. The Kanpur factory was a small scale factory, with

  Just 10 workers. So the decision to stop manufacturing there didn't cause too much disruption. And since at 100 workers, the Silvassa plant was clearly overstaffed, about 30 were shifted to Baddi a new factory, with just eight employees thus solving two problems. Dabur's consumer care frontline has 400 people, of whom 120-odd are from Balsara. Following Dabur policies at Balsara did mean some expense. Salaries were hiked to bring them in line with the Dabur structure; and external consultants were brought in to conduct detailed assessments of all employees and redeployments were made on the basis of their recommendations. Using the "train the trainer" module, about 55 managers conducted workshops for sales staff across the country. Everything worked out much better than what Dabur planned.

  Marketing Synergies:

  Dabur spent more than Rs 170 crore (Rs 1.70 billion) on advertising in 2004, it was able to negotiate far better rates for Balsara advertising. The budget amounted to Rs 40 crore (Rs 400 million) for Balsara. Given its limited resources, Balsara could really focus on only one brand in a year. Balsara's oral care brands stood a better chance of carving out market share for themselves while Meswak is a premium herbal toothpaste, Babool straddles the economy and herbal platforms. Dabur's immediate focus was therefore, going to be on Meswak and Babool, and the high margin, high growth home care products.

  The first step has been to form a consolidated network that effectively covers the entire country while Dabur's strengths are in the north and east, Balsara is popular in west and south India.

  While Balsara concentrated on larger towns with populations of between 100,000- 500,000, Dabur goes further into rural India, reaching towns with populations of even 5,000.

  Advertising has also been upped for Balsara products including Odonil and Sanifresh, which haven't appeared on TV before. The Dabur logo has been included on the Balsara oral care products and consumer promotions are also being planned. Already, Meswak's price has been slashed by Rs 10 to help bring in volumes, while toothbrushes are being offered free with Babool.

  The home care range, though, will remain independent of Dabur, given the lack of synergy. The sales team will target queues outside theatres and stadiums and offer samples of Odomos, emphasizing the need for out-of-home protection from insects.

  Scenario Post Merger:

  The acquisition of Balsara by Dabur came into effect from 1st April 2006. Balsara got fully consolidated within Dabur India, as on September 28, 2006

  The Balsara consolidated entity grew by around 30% post acquisition. So Balsara continued its strong growth curve. Dabur Consolidated, which includes financials of Dabur India and its subsidiaries - Dabur Foods, Dabur International (and its step down subsidiaries), Dabur Nepal and Balsara - recorded a growth of 46.5 per cent in net profit, up from Rs 112.09 crore to Rs 164.22 crore, during the nine-month period ended December 31, 2005. The sales, during the same period surged by 24.3 per cent, up from Rs 1142 crore to Rs 1419.64 crore.

  During the quarter, the consolidated business posted a growth of 37.6 per cent in its net profit, up from Rs 47.22 crore to Rs 64.94 crore, on a turnover that increased by 26 per cent from Rs 426.6 crore to Rs 537.40 crore.

  International business, Foods, and Balsara turnaround recorded significant gains on a consolidated basis. Food business, led by Real franchise, recorded a growth of 48.4 per cent while the International business (including Balsara exports), consolidated under Dabur International, recorded a growth of 40 per cent. Balsara turnaround also played a key role in driving profitability on a consolidated basis.

  Dabur India results

  Dabur India - which includes the Consumer Care Business and Consumer Health business - posted a growth of 30 per cent in its net profit, up from Rs 106.79 crore to Rs 138.86 crore, during the nine month period. The turnover, during the same period, registered a growth of 8.5 per cent, up from Rs 955.95 crore to Rs 1036.99 crore.

  During the third quarter, the company recorded a growth of 34.4 per cent in its net profit, up from Rs 43.13 crore to Rs 57.97 crore, on a turnover that increased by 10.3 per cent, up from Rs 367.13 crore to Rs 404.84 crore.

  Health Supplement, Digestives and Hair care businesses recorded good growth despite competitive pressures. The Consumer health business, comprising traditional Ayurvedic medicines business, posted a growth of 31.3 per cent during the nine-month period. FMCG major Dabur India, after the acquisition of Balsara, is looking at growing its share in the Rs 1,900 crore oral care market to 15 per cent in two to three years, besides tapping the US and western European markets in the private label business the acquisition of Balsara has also provided the company with the capacity to go in for private label business for toothpastes. Oral care is the third-largest revenue earner after hair care and healthcare supplements, and accounted for about 20 per cent of overall turnover last fiscal Balsara did extremely well; it grew at around 20% for the home care and the oral care businesses.

  Comparison of Pre -merger and Post- merger Financial Statements of Dabur India

  Comparative Analysis

  Dabur India (Profit &Loss A/C) (Rs. in crore)

  	Mar ' 05	Mar ' 06	Absolute change	Percentage change
  Income
  Operating income	1,231.10	1,345.50	114.40	9.29
  Expenses
  Material consumed	546.73	582.43	35.70	6.53
  Manufacturing expenses	22.45	27.1	4.65	20.71
  Personnel expenses	82.09	98.31	16.22	19.76
  Selling expenses	322.3	316.46	(5.84)	(1.81)
  Administrative expenses	76.22	80.24	4.02	5.27
  Expenses capitalized	-	-
  Cost of sales	1,049.78	1,104.55	54.77	5.22
  Operating profit	181.31	240.95	59.64	32.89
  Other recurring income	2.93	1.05	(1.88)	(64.16)
  Adjusted PBDIT	184.24	242.01	57.77	31.36
  Financial expenses	4.66	5.73	1.07	22.96
  Depreciation	17.1	19.05	1.95	11.40
  Other write offs	1.49	4.26	2.77	185.91
  Adjusted PBT	160.99	212.97	51.98	32.29
  Tax charges	17	25.78	8.78	51.65
  Adjusted PAT	143.99	187.19	43.20	30.00
  Non recurring items	4.03	1.9	(2.13)	(52.85)
  Other non cash adjustments	-0.05	0.21	0.26	(520.00)
  Reported net profit	147.97	189.29	41.32	27.92
  Earnings before appropriation	229.09	314.52	85.43	37.29
  Equity dividend	71.59	100.32	28.73	40.13
  Preference dividend	-	-
  Dividend tax	9.77	14.07	4.30	44.01
  Retained earnings	147.73	200.13	52.40	35.47

  Comparative Analysis

  Dabur India (Balance Sheet) (Rs. in crore)

  	Mar ' 05	Mar ' 06	Absolute change	Percentage change
  Sources of funds
  Owner's fund
  Equity share capital	28.64	57.33	28.69	100.17
  Share application money	-	-
  Preference share capital	-	-
  Reserves & surplus	309.43	390.54	81.11	26.21
  Loan funds
  Secured loans	15.7	19.23	3.53	22.48
  Unsecured loans	32.77	1.25	(31.52)	(96.19)
  Total	386.54	468.35	81.81	21.16
  Uses of funds
  Fixed assets
  Gross block	317.46	328.23	10.77	3.39
  Less : revaluation reserve	-	-
  Less : accumulated depreciation	135.12	142.46	7.34	5.43
  Net block	182.35	185.77	3.42	1.88
  Capital work-in-progress	9.26	13.07	3.81	41.14
  Investments	270.94	275.08	4.14	1.53
  Net current assets
  Current assets, loans & advances	253.35	285.68	32.33	12.76
  Less : current liabilities & provisions	335.16	324.12	(11.04)	(3.29)
  Total net current assets	-81.81	-38.44	43.37	(53.01)
  Miscellaneous expenses not written	5.81	32.87	27.06	465.75
  Total	386.54	468.35	81.81	21.16
  Notes:			0.00
  Book value of unquoted investments	227.12	234.43	7.31	3.22
  Market value of quoted investments	46.18	43.43	(2.75)	(5.95)
  Contingent liabilities	175.62	190.02	14.40	8.20
  Number of equity shares outstanding (Lacs)	2864.2	5733.03	2868.83	100.16

  Common Size Statement

  Dabur India (Profit &Loss A/C) (Rs. in crore)

  	Mar ' 05	% of sales	Mar ' 06	% of sales
  Income
  Operating income	1,231.10	100.00	1,345.50	100.00
  Expenses
  Material consumed	546.73	44.41	582.43	43.29
  Manufacturing expenses	22.45	1.82	27.1	2.01
  Personnel expenses	82.09	6.67	98.31	7.31
  Selling expenses	322.3	26.18	316.46	23.52
  Administrative expenses	76.22	6.19	80.24	5.96
  Expenses capitalized	-		-
  Cost of sales	1,049.78	85.27	1,104.55	82.09
  Operating profit	181.31	14.73	240.95	17.91
  Other recurring income	2.93	0.24	1.05	0.08
  Adjusted PBDIT	184.24	14.97	242.01	17.99
  Financial expenses	4.66	0.38	5.73	0.43
  Depreciation	17.1	1.39	19.05	1.42
  Other write offs	1.49	0.12	4.26	0.32
  Adjusted PBT	160.99	13.08	212.97	15.83
  Tax charges	17	1.38	25.78	1.92
  Adjusted PAT	143.99	11.70	187.19	13.91
  Nonrecurring items	4.03	0.33	1.9	0.14
  Other non cash adjustments	-0.05	(0.00)	0.21	0.02
  Reported net profit	147.97	12.02	189.29	14.07
  Earnings before appropriation	229.09	18.61	314.52	23.38
  Equity dividend	71.59	5.82	100.32	7.46
  Preference dividend	-		-
  Dividend tax	9.77	0.79	14.07	1.05
  Retained earnings	147.73	12.00	200.13	14.87

  Common Size Statement

  Dabur India (Balance Sheet) (Rs. in crore)

  	Mar ' 05	% of total	Mar ' 06	% of total
  Sources of funds
  Owner's fund
  Equity share capital	28.64	7.41	57.33	12.24
  Share application money	-		-
  Preference share capital	-		-
  Reserves & surplus	309.43	80.05	390.54	83.39
  Loan funds
  Secured loans	15.7	4.06	19.23	4.11
  Unsecured loans	32.77	8.48	1.25	0.27
  Total	386.54	100.00	468.35	100.00
  Uses of funds
  Fixed assets
  Gross block	317.46	82.13	328.23	70.08
  Less : revaluation reserve	-		-
  Less : accumulated depreciation	135.12	34.96	142.46	30.42
  Net block	182.35	47.17	185.77	39.66
  Capital work-in-progress	9.26	2.40	13.07	2.79
  Investments	270.94	70.09	275.08	58.73
  Net current assets
  Current assets, loans & advances	253.35	65.54	285.68	61.00
  Less : current liabilities & provisions	335.16	86.71	324.12	69.20
  Total net current assets	-81.81	(21.16)	-38.44	(8.21)
  Miscellaneous expenses not written	5.81	1.50	32.87	7.02
  Total	386.54	100.00	468.35	100.00

  Acquisition of Nihar brand from HLL by Marico

  About the merging companies:

  Marico Company

  Marico is a leading Gazipur.

  The organization holds a number of brands: Brands held by the organization include: HairCode.

  Marico's brands and their extensions occupy leadership positions with significant market shares in a number of health and beauty areas. As well as being a producer of consumer products the organization also operates UAE).

  Hindustan Unilever Limited Company

  Hindustan Unilever Limited formerly Hindustan Lever Limited, is India's largest consumer products company and has an annual turnover of over Rs 13,000 crores (calendar year 2007). It was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd. It is headquartered in India. The company was renamed in late June 2007 to “Hindustan Unilever Limited”. In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25 years by Business World, one of India's leading business magazines. The rating was based on a compilation of the magazine's annual survey of India's Most Reputed Companies over the past 25 years. HUL is the market leader in Indian consumer products with presence in over 20 consumer categories such as Soaps, Tea, Detergents and Shampoos amongst others with over 700 million Indian consumers using its products. It has over 35 brands. Sixteen of HUL's brands featured in the AC Nielsen-Brand Equity list of 100 Most Trusted Brands Annual Survey (2008). According to Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List. It's a company that has consistently had the largest number of brands in the Top 50 and in the Top 10 (with 4 brands).

  Some of its brands include Vim dishwash, Ala bleach and Domex disinfectant.Rexona,Modern Bread and Axe deosprays. Unilever's mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life.

  The Acquisition:

  On January 28, 2006, India's largest consumer goods company, Hindustan Lever has sold its 13 year old hair oil business Nihar to Marico for Rs 240crore. With the hair oil market growing at an average of about 10% it is hoped that Marico will give Nihar a new lease of life. HLL had initiated the divestment as a part of its brand rationalization programme. The process involved competitive bidding amongst select FMCG companies. With this sale, HLL has been able to profitably dispose of its 'non core' business and Marico which otherwise had a market share of 52% in the coconut oil segment will now boast of a 60% market share.

  The Terms of the Acquisition:

  Date of acquisition:

  The merger came into effect from January 28, 2006.

  The new company formed

  : According to the deal HLL will envisage a transfer of the IPR and other rights associated with the Nihar brand in India and other parts of the world to Marico. HLL will continue to operate brands other than Nihar in the value added hair oil segment. With this acquisition, Marico's share of coconut oil would go up to 60 per cent from the current 52 per cent and in perfumed hair oil to 60 per cent from 30 per cent.

  The Share Swap Ratio

  : Under the deal announced, India's largest consumer goods company, Hindustan Lever has sold its 13 year old hair oil business Nihar to Marico for Rs 240crore cash deal.

  Examining theAcquisition:

  Type of merger:

  Coconut oil major Marico Ltd has acquired brand Nihar from Hindustan Lever Ltd (HLL) for a consideration of about Rs 240 crore deals. The deal marks HLL's exit from the hair oil category The acquisition in question; between Marico and HLL is thus a merger where the acquiring company is expanding in size of operations and also product offerings This is thus a

  horizontal merger.

  Operational Synergies of the merger:

  The acquisition of Nihar brand by Marico would not only give it a strong position geographically but also a larger product range. As coconut oil and perfumed oils are high margin products, the company would be making a substantial leap in terms of top line and bottom line. Nihar's strengths in the East especially its distribution reach, in Bihar and Jharkhand will provide Marico a platform for its other brands. In perfumed coconut oils, Nihar Naturals (Jas