24 Jun

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

WRITTEN BY Phalguni Soni

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.

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

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.

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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