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Procter & Gamble’s $70 Billion Shareholder Value Plan

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Procter & Gamble’s gains from the Coty beauty deal

Procter & Gamble’s (PG), or P&G’s, proposed 43-beauty-brand merger with Coty (COTY) is likely to result in significant after-tax sale proceeds. Indeed, P&G estimates the figure to be between ~$5 billion and $7 billion. P&G expects the transaction to close by the second half of calendar 2016, subject to requisite regulatory approvals.

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Earnings per share impact

In the fiscal year before the deal closes, P&G expects to incur $0.02 to $0.03 per share in transition costs. These relate to the establishment of a Reverse Morris Trust structure that’s envisaged for merging the brands with Coty (see Part 7).

However, the transaction with Coty isn’t expected to dilute P&G’s core EPS (earnings per share) following its completion. Any loss of income resulting from the sale would be compensated for by a reduction in the outstanding number of shares as well as a reduction in overhead.

$70 billion plan

P&G expects to spend up to $70 billion in dividends and share retirement over the four-year period between fiscal 2016 and fiscal 2019.

As a result of the Duracell batteries deal with Berkshire Hathaway (BRK-B) and the beauty brands transaction with Coty, P&G expects to retire about $13 million and $16 billion worth of shares via share exchange transactions. This would reduce the number of its outstanding shares by ~18%, according to P&G CFO Jon Moeller, speaking during a conference call.

P&G also expects to shell out $30 billion in dividends and to repurchase shares worth up to ~$25 billion over the next four years. This is expected to reduce the company’s market cap by 32%. P&G had a market cap of ~$223.3 billion as of July 16. If its market cap is reduced by 32%, it would be in the neighborhood of ~$150 billion.

Despite the conscious scale reduction, P&G would still be the largest personal products (XLP) company worldwide. Peers Unilever (UN) (UL), Reckitt Benckiser (RGBLY), Kimberly-Clark (KMB), and Colgate (CL) had respective market caps of $135.4 billion, $67.1 billion, $40.8 billion, and $61.2 billion as of July 16.

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