Gillette's Acquisition of Duracell

3112 Words Mar 27th, 2011 13 Pages
Key Issues

The Gillette Company was founded in 1901 in a small office in Boston. Since its departure, Gillette has positioned itself as one of the most recognizable brands not only through their safety razor blades, but also through corporate diversification. This included the acquisition of a number of major companies, most recently Duracell. Prior to this acquisition, the Duracell Corporation had been the leading producer of alkaline batteries in the United States and maintained consistent growth in revenues from 1991-1996. Since their purchase of Duracell, their stock price has fallen 45% to a low of $34. The issue for Gillette is to determine if they can promote the profitable growth of their acquisition.

Decision Criteria
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The rivalry in this industry has become so intense that it is not uncommon for these companies to bring each other to court for various claims made in their new product launches. Outside of the competitive environment potential opportunities in large developing economies (like India) have an untapped market with regard to the alkaline batteries. The conversion from zinc-carbon batteries to alkaline was much slower outside the United States then anticipated and this hindered international sales for some battery companies. Alkaline batteries in these foreign markets only make up 3% compared to 70% in the United States. The reason for the slow conversion in the foreign markets is due to tough economic times and the high cost associated with setting up manufacturing facilities capable of alkaline production.

Internal: Prior to Gillette acquiring Duracell in 1996, the Duracell Corporation maintained a constant growth in revenue (about 8% annually). Gillette and Duracell both held strong relationships with many vendors worldwide and sustained a strong channel of distribution. Upon the acquisition of Duracell, Gillette eliminated 4,700 jobs, closed 14 plants and also replaced Duracell’s advertising agency with that of Gillette. These changes resulted in savings of $200 million and decreases in their operations margins from 30% in 1998, to 16% in 2000. The debt to equity ratio has been increased from 1.62 in 1998 to 4.41 in 2000. This increase

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