Gillette Acquisition Of Duracell

Industry: Portable power industry in the US

The acquisition of Duracell was seen as many as a smart move. Analyst, shareholders, executives, had high expectations with this merger. Unfortunately, this acquisition created several problems for Gillette since their main goal of profit maximization was not being accomplished.

Main issues:

• Should Gillette divest Duracell?

• Is Gillette using the appropriate strategies to deal with the big and small competitors?

• Stock prices are decreasing considerably

External Analysis

Industry Structure

• Dry cell batteries industry generated US$ 2.6 Billion in US domestic sales in 2000.

• 75% of all alkaline battery sales were impulsive purchasing.

• AA size batteries accounted for almost 50% of all sales.

• The industry was highly competitive, and the three big players were constantly developing new products.

• There were three main distribution channels for batteries: discounters, 52.5% of sales; drug stores, 23.8% of sales; and supermarkets, and 23.7% of sales.

Industry trends

• Alkaline batteries were the preferred by American consumers.

• Due to high percentage of impulsive purchasing, manufacturers have to make sure to provide the effective displays for the batteries. Great amount of sales is dependent on the retailers’ effective display.

• Retailers are creating their own private brands (manufactured by the same big players)

Sociocultural segment

• In the US, where time is money, people are always in the rush. This probably explains why the high percentage of battery sales is impulsive purchasing. In addition, the American culture is highly receptive to technological innovations, so more efficient batteries are going to be needed.

Economic Seg...

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..., since the company would be more price competitive and it already has a well established brand name, it would be more difficult to gain market share for these small competitors that are emerging, i.e. private brands, Sony, Kodak, Panasonic, etc.

Appendix

1. Ratios

Financial Ratios 2000 1999 1998 1997

GP MARGIN (%) 63,59 62,95 61,97

Operating Margin (%) 16,27 22,80 19,30

ROS (%) 4,22 13,76 11,75

ROA (%) 3,77 10,69 9,08

ROE (%) 20,37 41,18 23,79

PRICE/EARNINGS RATIO 94,59 35,09 44,27

CURRENT RATIO 0,86 1,39 1,56 1,78

DEBT TO EQUITY RATIO 4,41 2,85 1,62 1,24

2. Debt to equity analysis

Year Total liabilities Total stockholders equity Debt to Equity ratio

1997 6,023 4,841 1.244164429

1998 7,359 4,543 1.619854722

1999 8,726 3,060 2.851633987

2000 8,478 1,924 4.406444906