Investment Bankinghw5
1.What were the possible synergies and forces propelling the merger between P&G and Gillette—as well as the history of other takeover attempts for Gillette? Both P & G and Gillette were established in the early 1900’s and served similar purposes. Gillette and P & G are both strong, stable companies and could make an even stronger company. One of the propellers causing the companies to merge was that Gillette sold to men while P & G focused on women in the industry. These companies sell similar products, so the merge made sense. Each company has several popular brands so if they merged they would increase this number.
2. In light of Gillette’s large increase in value during James Kilts’s tenure, was his compensation reasonable? Was his pay package in the best interest of shareholders? Perhaps his compensation was not best for shareholders because it created a conflict of interest. This may have been a “wealth creation vehicle” for James Kilts. On the other hand, Kilt’s compensation was an incentive for him to make the merge fair and to make it go through.
3. Evaluate the P&G offer. Make a list of the positive and negative aspects of receiving shares or cash from both the perspective of P&G and Gillette shareholders. Receiving Shares:
P & G Positive-don’t need to give away cash on hand, doesn’t affect working capital, lowers risk because Gillette shares risk Negative-since it’s not affecting working capital company value could be off, earnings per each share issue go down
Gillette Positive-tax advantage, share risk/reward with P & G Negative-liability incurred
Cash:
P & G Positive- shares will not lose earnings Negative-have to have a lot of cash on hand, increases liquidity risk
Gillette Positive-decreases risk that P & G won’t pay, liquidity Negative-disadvantage when paying taxes
4. Compare the valuation analyses in Case Exhibits 6 and 7. Why are they different? Support and defend the validity of using each
2. In light of Gillette’s large increase in value during James Kilts’s tenure, was his compensation reasonable? Was his pay package in the best interest of shareholders? Perhaps his compensation was not best for shareholders because it created a conflict of interest. This may have been a “wealth creation vehicle” for James Kilts. On the other hand, Kilt’s compensation was an incentive for him to make the merge fair and to make it go through.
3. Evaluate the P&G offer. Make a list of the positive and negative aspects of receiving shares or cash from both the perspective of P&G and Gillette shareholders. Receiving Shares:
P & G Positive-don’t need to give away cash on hand, doesn’t affect working capital, lowers risk because Gillette shares risk Negative-since it’s not affecting working capital company value could be off, earnings per each share issue go down
Gillette Positive-tax advantage, share risk/reward with P & G Negative-liability incurred
Cash:
P & G Positive- shares will not lose earnings Negative-have to have a lot of cash on hand, increases liquidity risk
Gillette Positive-decreases risk that P & G won’t pay, liquidity Negative-disadvantage when paying taxes
4. Compare the valuation analyses in Case Exhibits 6 and 7. Why are they different? Support and defend the validity of using each