Procter & Gamble Swot

Procter & Gamble (Research) is already the nation's largest consumer products company, making everything from Pampers to Tide, from Crest toothpaste to Head & Shoulders shampoo. Products from Gillette (Research) include not only its signature razors but also Duracell batteries and Braun and Oral-B brands dental care products.

"This merger is going to create the greatest consumer products company in the world," said billionaire investor Warren Buffett, whose Berkshire Hathaway (Research) is Gillette's largest shareholder with 96 million shares, or about 9 percent of the company.

"It's a dream deal," Buffett said, adding that he would increase his holdings so that he would end up with 100 million shares of P&G by the time the deal closes. (The deal gives Buffett a one-day profit, on paper, of roughly $645 million and a whopping $4.4 billion profit overall. For more, click here).

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.

"Shelf space is diamond-encrusted gold. It's exposure to the consumer and everyone wants exposure to the consumer," said retail analyst Kurt Barnard. "They each had a lot of economic power before, but with the marriage they'll have a lot more power, power to get shelf space, preferred positions, all of that."

That increased power for the largest player in the U.S. industry is also seen as putting pressure on smaller rivals to eye deals of their own.

While P&G and Gillette officials didn't specifically address what other deals this one could spur, Gillette CEO Jim Kilts said he does expect further consolidation in the consumer products industry.

"I believe the consumer product industry needs to consolidate," he told analysts. "I'd rather lead it than end up with the leftovers."

Under the deal announced early Friday, Procter & Gamble will pay 0.975 share of its common stock for each share of Gillette common stock. Based on Thursday closing prices, that would represent an 18 percent premium for Gillette shares.

The news sent P&G stock down about 2 percent while Gillette jumped about 12 percent in afternoon trading.

P&G tried to assure investors concerned about the dilution of their holdings by announcing it would spend $18 billion to $22 billion of P&G's common stock during the next 12 to 18 months. It said that repurchase program should be the equivalent as if the deal were structured as 60 percent stock and 40 percent cash.

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.

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.

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