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P&G bid for Unilever: Why such a deal spells trouble for both

Industry observers, trade analysts and even merger and acquisition experts have been shaking their heads over the sheer magnitude, hardship and complexity of this 'utopian' exercise. If the bid really goes through, it could spell more trouble than good.

Shamni Pande   New Delhi/Mumbai     Last Updated: June 4, 2011  | 13:25 IST

The news about Procter & Gamble's reported bid for Unilever must have come as a bonanza for punters and analysts bullish on Hindustan Unilever, the Indian subsidiary of Unilever that had earlier reported a good performance for the year to March 2011. The stock moved further north on Thursday after a news sites quoted the original report in Britain's Daily Mail about P&G's 38-billion pounds bid for Unilever , its arch rival globally in fast-moving consumer goods or FMCG.

But industry observers, trade analysts and even merger and acquisition experts have been shaking their heads over the sheer magnitude, hardship and complexity of this 'utopian' exercise. If the bid really goes through, it could spell more trouble than good.
 
For starters, both the companies have had to deal with reports about European Union regulators accusing them of "fixing"  washing-powder prices.  Back home, the Competition Commission of India has notified the final regulations for merger and acquisition deals that could affect markets.
 
According to Girish Vanvari, Executive Director at consultants KPMG, who studies such issues, regulatory action will depend entirely on how the deal is being executed. "If this is an acquisition, then the takeover code will come into play. However, if this is a merger between the two companies then it would be looked at a little differently," he says.
 
The two companies, especially Hindustan Unilever, would also have to tackle the big question over taxation of such deals. The Indian taxation authorities have been very aggressive in taxing merger and acquisition deals, as was seen in the 2007 Vodafone case, which is still unresolved. In fact, there is no clarity on how P&G will structure its reported acquisition of Unilever.
 

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Rumoured or real, industry observers are skeptical of the news: "If this is true, then it is bad for consumers and the markets," says brand and strategy expert Harish Bijoor. According him, if it ever materializes, then it would be driven by financial considerations.

Besides there another danger that many overlook, Bijoor says: "The likelihood of incompetence that could creep into the respective systems". When two giants compete, the mindset-to-market is very different and "there is eyeball to eyeball confrontation and even a blink spells trouble," he says. On the flip side, there are chances of the local FMCG players making merry. Players like Marico and Dabur could actually benefit in some other ways and profit from the confusion in the market.
 
The only gains for P&G and HUL could be in production and the logistics of distribution. "There are also clear benefits to be had in the marketing and advertising costs of the two," he says. HUL's annual advertising and marketing budget is in excess of Rs 2000 crore.
 
But some analysts do not see any gains even here. "According to me this is pure speculation --  a utopian situation and hardly likely to come true," says Anand Mour, Vice President for research (consumer), at India Bulls Securities. According to him, there is a lot of complexity involved in the exercise. "There is hardly a 'wow factor to the news and the players will need to deal with the tough challenge of how they streamline categories and brands and their respective play in the market," he says. To be sure, the main area of play for both the companies in India would be soaps and detergents, personal care and feminine hygiene.
 
And don't forget the implications for human resources. "Both these companies are rated very highly in their HR practices and are seen as top destinations for those interested in sales and marketing jobs. However, things could be different if the entities were to come together," says Sonal Agrawal, CEO, Accord Group, an executive search firm. The big challenge would be to map structures of the two behemoths as they are organized differently. The next biggest challenge would be in the roles of people. "It would be ideal to match people to the role," she says. But talent experts, in general, feel that the talent of the acquired company tends to get the short shrift. Clearly, both the giants would not want to take on these woes either globally or in India - that is in addition to the pressures they face on margin pressures, competition and much else.

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