The publicly traded companies I choose for this essay are Procter & Gamble (PG) and Colgate-Palmolive Co. Both companies are listed in the New York Stock Exchange (NYSE) and cross-listed in other stock exchanges in the world. They both deal in personal products, a highly competitive and sensitive industry. They have proven record and sizeable presence in the global market. In this scenario, I head the P&G and seek to acquire, horizontally, Colgate-Palmolive. P&G’s Board of Directors seek to acquire 100% of the voting stock of the target company.
Procter & Gamble Company (P&G)
P&G is a personal products’ manufacturer and supplier. It deals mostly with a wide range of consumer goods. It is a worldwide corporation with the headquarters in Cincinnati, OH, US. James Gamble and William Procter established P&G in 1837. The company has since grown to have a global reach and is now an industry leader. It manufactures products in five subdivisions: beauty, hair, and personal care; grooming; health care; fabric care and home care; and baby, feminine and family care (Yahoo Finance, 2016).
Delegate your assignment to our experts and they will do the rest.
The key players are current Chairman A.G Lafley and C.E.O David S. Talyor, who form part of the Executive Leadership driving the P&G strategy. In 2015, P&G made total sales of $76.28 Billion. It had a profit of $7 billion in that fiscal year. It had a market capitalization as of $220.18B as of April 25, 2016. P&G has had key events, which shaped and made it popular in its market niche (Yahoo Finance, 2016).
Colgate-Palmolive Co.
Colgate-Palmolive is a renowned toothpaste manufacturer, but it deals (through its holdings and associates) in other personal, home care and pet nutrition products. Its mainstay division is that of oral care goods, which cover toothpastes, toothbrushes, and mouthwashes. It also manufactures professional products for health professionals like dentists and clinicians. The personal care division handles the production, distribution, and sale of various soap types, creams, assorted deodorizers, and shampoos. The home care division handles the various cleansing agents, cleaners, decolorizes, and conditioners. The pet nutrition division handles pet merchandises, which cover daily food rations, medicine, and supplements among other products (Yahoo Finance, 2016b).
The company has its headquarters in New York. It was established in 1806. The current chairperson and CEO is Ian M. Cook. It operates in 200 countries. In 2015, the company made sales of $16.03B while the profit before taxes amounted to $9.40B. It had a market capitalization of $61.93B as of April 25, 2016 (Yahoo Finance, 2016b).
How the Acquisition of Colgate-Palmolive fits into P&G’s Strategic Direction
The acquisition of Colgate-Palmolive will fit the P&G’s strategy of increasing its market share around the world. It would be able to control close to 80% of the market share in the major product divisions. It will bolster its revenues and cut losses both in the established and emerging markets. Colgate’s global market share is 44.3% for toothpaste, 33.1% for manual toothbrushes, and 17.3% for mouthwash. Colgate demonstrates growth in all key financial categories and the projection for all in the next few fiscal years is remarkable. Its global market share of toothpaste will be a catch for P&G. P&G seeks to be an industry leader, and does not shy away from making acquisitions towards the same end. Colgate will add on to its overall strategy and put P&G into a global map especially in the segments that it lags behind in; for example the oral care and pet products. P&G already owns 22 different brands, with each bringing over $1B in revenue per year. The acquisition will add approximately over 15 other brands, which may make the company unmanageable due to its size; but it would have gained a competitive edge. However, as part of an overall strategy, it can leave Colgate to operate independently. Colgate has spent about $1B in R&D since 2011, meaning that its growth prospects are high.
Three (3) Possible Synergies That Could Occur because of the Proposed Acquisition
The three possible synergies can take the following forms:
Revenues: A combination of the two companies will generate high revenues (over $95B), which is more than when both operate separately.
Expenses: An M&A of the two companies will yield lower expenses that if both operate separately.
Cost of Capital: A combination of the companies will lower the overall cost of capital.
Two (2) Out of the Three (3) Choices Provided
On 100% Acquisition
Value of Our Company (Acquiring Company) $220.18B
Value of Target Company $61.93B
Value of Synergies on Due Diligence $20B
Less M & A Costs (Legal, Investment Bank, etc.) ($5B)
Total Value of Combined Company $297.11B
On 51% Acquisition
Value of Our Company (Acquiring Company) $220.18B
Value of Target Company (51%) $31.58B
Value of Synergies on Due Diligence $11B
Less M & A Costs (Legal, Investment Bank, etc.) ($4.5B)
Total Value of Combined Company $258.26B
Preparing the Financial Statements for P&G after the Acquisition
It would be important to calculate the consolidated figure for receivables and payables by adding them up for both acquisition types and excluding or adding a correct figure if both companies have outstanding receivables and payables from each other. I will also have to adjust for unrealized profits and calculate the value of goodwill. The consolidated accounts for the company after the acquisition will follow all the relevant accounting standards if the bid is accepted (Davis & Largay, 2008).
The Most Advantageous Choice to the Company
The most beneficial choice will be 100% acquisition because:
The company will have a bigger market share, through revenues and sales
The company will strengthen its competitive position as the new state allows more finances to be devoted to R&D and better strategic management.
The cost of doing business will come down because the new company will achieve economies of scale in production, marketing, and emerging markets (Davis & Largay, 2008).
The Type of Value to Use to Report the Subsidiary’s Net Asset
Fair Value Approach would be used. It is because the acquired company reported similar net income, which means the acquisition did not affect its standing negatively and the changes are not yet fully implemented. FVA also takes into account the current market prices and prospects (Davis & Largay, 2008).
References
Davis, M., & Largay III, J. A. (2008). Consolidated financial statements. The CPA Journal , 78 (2), 26.
Yahoo Finance. (2016). PG Profile | Procter & Gamble Company (The) Stock . Retrieved April 26, 2016 from http://finance.yahoo.com/q/pr?s=PG Profile
Yahoo Finance. (2016b). CL Profile | Key Statistics . Retrieved April 26, 2016 from
http://finance.yahoo.com/q/ks?s=CL+Key+Statistics
