P&G has reported increasing sales and profits for the last couple of years and combined with its low level of borrowing the company has been in an increasingly strong position to make a major acquisition.
Gillette's activities are divided up into three main areas: razors, blades and associated personal care products; batteries and Oral-B toothbrushes and oral care products. But the mainstay of its business is its razors and men's grooming personal care products. Indeed Gillette's aggressive marketing has made its shaving products amongst the most recognised around the world.
P&G will acquire the whole of the Gillette company, including its manufacturing, technical and research facilities. The transaction will be subject to the usual merger and acquisition regulatory conditions, which means that deal is expected to be completed in the Autumn of 2005.
The deal is the largest in the company's history and will eventually create what its executives are billing as the world's largest consumer goods company. It will also give some of its biggest rivals a major new force for competition - with some experts predicting that competition in the men's personal care segment will put financial pressures on many of the smaller players.
The deal will also mean a major restructuring project, with the synergies realised by the two companies expected to bring savings of between $14 and 16 billion. Likewise this is expected to mean that the companies joint workforce will be reduced by around 4 per cent, or 6,000 staff.
"This combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity," said A.G. Lafley, chairman and president of P&G. "Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit."
Multi-billionaire investor Warren Buffet, one of America's richest individuals and chairman of Berkshire Hathaway Investment company, Gillette's largest shareholder, said: "This merger is going to create the greatest consumer products company in the world. It's a dream deal."
Buffet added that he intends to increase his stake in Gillette in an effort to give his investment company 100 million shares in P&G by the time the deal is closed.
Analysts have generally shared Buffet's enthusiasm for the deal, with Banc of America recommending that investors buy P&G stocks. One Banc of America analyst said he recognised that the deal was necessary if the company was to maintain the market growth it has been enjoying of late.
Although many of Gillette's products already compete head to head with P&G products for shelf space, particularly in the deodorant and oral care categories, the two companies have also targeted different areas of the market, with Gillette focusing on men's personal care lines and P&G tending to focus more on women's personal care lines. It is for this very reason that the fit is so good for the cosmetics category.
The deal is expected to turn P&G into a $60 billion global conglomerate, but the added impetus the deal will bring to the company's personal care portfolio extension leaves P&G towering above the competition.