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The Rationale behind Procter & Gamble’s Portfolio Shake-Up

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Procter & Gamble’s spate of sales

As we saw in the last article, Procter & Gamble (or P&G) (PG) has probably divested three of its lines of businesses to Coty, Inc. (COTY) for $12 billion, according to unconfirmed media reports. The sale comes as P&G looks to concentrate on its core businesses.

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Portfolio rationalizations

Earlier this month, P&G announced it could be either divesting, discontinuing, or consolidating as many as 100 brands from its 180-brand portfolio. The company may also exit several businesses altogether. The decision could reduce the number of P&G’s brands by 60%. The company has already looked at exit options for ~40 brands.

Core concentration

Last year, P&G revealed that going forward, it will focus on 70–80 core brands that generated ~90% of its sales and ~95% of its profits. These brands, listed below, are also market leaders in their respective segments.

  • Tide is the market leader in the US laundry market with 60% share.
  • Pampers leads the US diaper market with 44% market share.
  • Skincare brand Olay has an 8% global market share.
  • P&G’s market share is as high as 70% in global blades and razors, which includes Gillette products.
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Strategy focus

That’s part of the strategy that CEO (chief executive officer) A.G. Lafley is using to revitalize the company. The strategy will enable P&G to do the following:

  • focus on its core portfolio
  • maintain the market leadership position of top-selling brands
  • look at verticalizing its portfolio
  • cross-sell products to customers

Duracell divestment

Buyers for P&G brands are diverse. Last December, P&G sold its Duracell brand to Warren Buffet’s Berkshire Hathaway (BRK-B) for $4.7 billion. The deal will happen through a split transaction in which P&G transfers its recapitalized Duracell business in exchange for P&G shares held by BRK-B. The transaction is expected to close in 2H15.

P&G also sold Camay and Zest soap brands to global rival Unilever (UN). The deal price was undisclosed.

P&G gets rid of Rochas

In March 2015, Inter Parfums (IPAR) announced it’s acquiring P&G’s Rochas brand of perfumes. The deal price was reported at $108 million, representing 2.3x sales generated in fiscal 2014. P&G is currently trading at 2.8x sales as of June 23, 2015.

P&G is part of the portfolio holdings of the First Trust Consumer Staples AlphaDEX ETF (FXG). FXG has 6.9% of its holdings invested in household products companies. P&G is also part of the iShares Core S&P 500 ETF (IVV). IVV invests 9.5% of its holdings in consumer staples companies.

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