FORM S-4
As filed with the Securities and Exchange Commission on
March 14, 2005
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE PROCTER & GAMBLE COMPANY
(Exact name of Registrant as specified in its charter)
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Ohio |
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2840 |
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31-0411980 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
One Procter & Gamble Plaza
Cincinnati, Ohio 45202
(513) 983-1100
(Address, Including Zip Code, and Telephone Number, including
Area Code, of Registrants Principal Executive Offices)
James J. Johnson, Esq.
The Procter & Gamble Company
One Procter & Gamble Plaza
Cincinnati, Ohio 45202
(513) 983-2069
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
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Chris B. Walther, Esq.
The Procter & Gamble Company
One Procter & Gamble Plaza
Cincinnati, Ohio 45202
(513) 983-7854 |
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Dennis J. Block, Esq.
Cadwalader, Wickersham & Taft LLP
One World Financial Center
New York, New York 10281
(212) 504-6000 |
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Richard K. Willard, Esq.
The Gillette Company
Prudential Tower Building
Boston, Massachusetts 02199
(617) 421-7000 |
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George R. Bason, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Ave.
New York, New York 10017
(212) 450-4000 |
Approximate Date of Commencement of Proposed Sale to the
Public: As soon as practicable after the effective date of
this registration statement and the effective time of the merger
(the Merger) of Aquarium Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of The
Procter & Gamble Company, an Ohio corporation
(Procter & Gamble), with and into The
Gillette Company, a Delaware corporation (Gillette),
as described in the Agreement and Plan of Merger, dated as of
January 27, 2005 (the Merger Agreement),
attached as Annex A to the joint proxy statement/
prospectus forming part of this registration statement.
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Amount of |
Title of each Class of |
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Amount to be |
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Offering Price |
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Aggregate |
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Registration |
Securities to be Registered |
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Registered |
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Per Unit |
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Offering Price |
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Fee(3) |
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Common Stock, without par value
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1,046,576,578(1) |
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$51.11 |
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$53,490,528,907.97(2) |
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$6,295,835.25 |
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(1) |
Represents the maximum number of shares of common stock, without
par value, of Procter & Gamble
(Procter & Gamble Common Stock) estimated
to be issuable upon completion of the Merger, based on the
exchange ratio of 0.975 shares of Procter & Gamble
Common Stock for each share of common stock, par value
$1.00 per share, of Gillette (Gillette Common
Stock) (based on 994,383,431 shares of Gillette
Common Stock outstanding on March 7, 2005 and
79,028,444 shares issuable pursuant to the exercise of
options). |
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(2) |
Pursuant to Rules 457(c) and 457(f)(1) under the Securities
Act of 1933, as amended, and solely for the purpose of
calculating the registration fee, the proposed maximum aggregate
offering price is equal to (x) the estimated number of
shares of Gillette Common Stock to be exchanged in the Merger
multiplied by (y) $51.11, the average of the high and low
sale prices per share of Gillette Common Stock on the New York
Stock Exchange Composite Tape on March 7, 2005. |
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(3) |
This fee has been calculated under Section 6(b) of the
Securities Act, by multiplying the proposed maximum aggregate
offering amount of $53,490,528,907.97 by 0.00011770. |
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities
Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
The information in
this joint proxy statement/ prospectus is not complete and may
be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary joint proxy statement/
prospectus is not an offer to sell and it is not soliciting an
offer to buy these securities in any jurisdiction where the
offer or sale is not
permitted.
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Subject to Completion, dated
March 14, 2005
MERGER PROPOSAL YOUR VOTE IS IMPORTANT
The boards of directors of The Procter & Gamble Company
and The Gillette Company have approved a merger that will result
in a company with world-class brands, technologies and
capabilities. We believe the combined company will be able to
create substantially more shareholder value than could be
achieved by either company individually.
If the merger is completed, Gillette shareholders will receive,
for each share of Gillette common stock, 0.975 shares of
Procter & Gamble common stock. Procter &
Gamble shareholders will continue to own their existing
Procter & Gamble shares. Upon completion of the merger,
Procter & Gamble shareholders will own approximately
72% of the combined company on a fully diluted basis, and
Gillette shareholders will own approximately 28% of the combined
company on a fully diluted basis. The shares of the combined
company will be traded on the New York Stock Exchange under the
symbol PG.
We are asking the Procter & Gamble shareholders
to adopt the merger agreement and approve the issuance of
Procter & Gamble common stock in the merger.
Procter & Gambles special meeting will be held:
[ ],
2005
[ ],
local time
Procter & Gamble General Offices
Two Procter & Gamble Plaza
Cincinnati, Ohio 45202
Procter & Gambles board of directors unanimously
recommends that Procter & Gamble shareholders
vote FOR the adoption of the merger agreement and
the approval of the issuance of Procter & Gamble common
stock in the merger.
We are asking the Gillette shareholders to adopt the
merger agreement and approve the merger. Gillettes special
meeting will be held:
[ ],
2005
[ ],
local time
[ ]
Gillettes board of directors unanimously recommends that
Gillette shareholders vote FOR the adoption of the
merger agreement and approval of the merger.
We cannot complete the merger unless the shareholders of
Gillette adopt the merger agreement and approve the merger and
the shareholders of Procter & Gamble adopt the merger
agreement and approve the issuance of Procter & Gamble
common stock in the merger. Your vote is important.
We believe this merger will create a strong combined company
that will deliver important benefits to its shareholders,
customers and consumers.
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A.G. Lafley
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James M. Kilts
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Chairman of the Board, President
and Chief Executive |
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Chairman of the Board, President
and Chief Executive Officer |
The Procter & Gamble Company
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The Gillette Company |
Consider the risks described on
pages through
of this document.
Neither the Securities and
Exchange Commission nor any state securities commission has
approved or disapproved the securities to be issued under this
joint proxy statement/ prospectus or determined if this joint
proxy statement/ prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
This joint proxy statement/ prospectus is dated
[ ],
2005, and is first being mailed to the shareholders of
Procter & Gamble and Gillette on or about
[ ],
2005.
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/ prospectus incorporates important
business and financial information about Procter &
Gamble and Gillette from other documents that are not included
in or delivered with this joint proxy statement/ prospectus.
This information is available to you without charge upon your
written or oral request. You can obtain those documents
incorporated by reference in this joint proxy statement/
prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses and telephone
numbers:
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if you are a Procter & Gamble shareholder: |
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if you are a Gillette shareholder: |
By Mail:
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The Procter & Gamble Company |
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By Mail: |
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The Gillette Company |
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P.O. Box 5572 |
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Prudential Tower Building |
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Cincinnati, OH 45201-5572 |
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Boston, MA 02199-8004 |
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Attention: Shareholder Services |
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Attention: Office of the Secretary |
By Telephone:
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(800) 764-7483 |
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By Telephone: |
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(617) 421-7000 |
If you would like to request documents, please do so by
[ ],
2005 in order to receive them before your special meeting.
See Where You Can Find More Information beginning on
page .
VOTING ELECTRONICALLY OR BY TELEPHONE
Procter & Gamble shareholders of record may submit
their proxies:
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Through the Internet, by visiting a web site established for
that purpose at www.proxyvote.com and following the
instructions; or |
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By telephone, by calling the toll-free number
(800) 690-6903 in the United States, Canada or Puerto Rico
on a touch-tone phone and following the recorded
instructions; or |
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By mail, by marking, signing, and dating your proxy and
returning it in the postage-paid envelope provided or returning
it to The Procter & Gamble Company, c/o ADP, 51
Mercedes Way, Edgewood, NY 11717. |
Gillette shareholders of record may submit their proxies:
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Through the Internet, by visiting a web site established for
that purpose at www.proxyvote.com and following the
instructions; or |
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By telephone, by calling the number (800) 690-6903 in the
United States, Canada or Puerto Rico on a touch-tone phone and
following the recorded instructions; or |
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By mail, by marking, signing, and dating your proxy and
returning it in the postage-paid envelope provided or returning
it to The Gillette Company, c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717. |
If you are a beneficial owner, please refer to your proxy card
or the information forwarded by your bank, broker or other
holder of record to see which options are available to you.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
THE PROCTER & GAMBLE COMPANY
NOTICE IS HEREBY GIVEN that The Procter & Gamble
Company will hold a special meeting of its shareholders on
[ ],
2005 at
[ ],
local time, at the Procter & Gamble General Offices,
Two Procter & Gamble Plaza, Cincinnati, Ohio 45202. The
purpose of the Procter & Gamble special meeting is to
consider and vote upon the following matters:
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1. |
A proposal to adopt the Agreement and Plan of Merger, dated as
of January 27, 2005, among Procter & Gamble,
Aquarium Acquisition Corp., a wholly owned subsidiary of
Procter & Gamble, and Gillette, and approve the
issuance of Procter & Gamble common stock in the
merger. A copy of the merger agreement is attached as
Annex A to the joint proxy statement/ prospectus
accompanying this notice; and |
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To transact such other business as may properly come before the
special meeting and any adjournment or postponement thereof. |
Holders of record of Procter & Gamble common stock,
Series A ESOP Convertible Class A Preferred Stock, and
Series B ESOP Convertible Class A Preferred Stock at
the close of business on
[ ],
2005 are entitled to receive this notice and vote their shares,
as a single class, at the special meeting or any adjournment or
postponement of that meeting. As of that date, there were
[ ] shares
of common stock outstanding,
[ ] shares
of Series A ESOP Convertible Class A Preferred Stock
outstanding and
[ ] shares
of Series B ESOP Convertible Class A Preferred Stock
outstanding. Each share of stock is entitled to one vote on each
matter properly brought before the meeting.
If you plan to attend the special meeting, you should present
the admission ticket included with the accompanying joint proxy
statement/ prospectus in order to gain admittance to the
meeting. This ticket admits only the shareholder listed on the
reverse side and is not transferable. If the shares are held in
the name of a broker, trust, bank or other nominee, you should
bring with you a proxy or letter from the broker, trustee, bank
or nominee confirming your beneficial ownership of the shares.
If you plan to vote via proxy and your shares are held in
street name, please note that your broker will not
be permitted to vote on the adoption of the merger agreement and
approval of the issuance of Procter & Gamble common
stock in the merger unless you provide your broker with
instructions on how to vote. A failure to vote is the same as a
vote against this proposal.
Your Board of Directors unanimously recommends that you vote
to adopt the merger agreement and approve the issuance of
Procter & Gamble common stock in the merger.
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By Order of the Board of Directors |
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James J. Johnson
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Secretary |
Cincinnati, Ohio
[ ],
2005
IMPORTANT
Your vote is important. Please either
(1) mark, sign, date and return the enclosed proxy card as
promptly as possible in the enclosed postage-paid envelope;
(2) use the telephone number shown on the proxy card to
submit your proxy by telephone or (3) visit the web site
noted on your proxy card to submit your proxy on the Internet.
Remember, your vote is important, so please act today!
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
THE GILLETTE COMPANY
NOTICE IS HEREBY GIVEN that The Gillette Company will hold a
special meeting of its shareholders at
[ ],
at
[ ],
local time, on
[ ],
2005. The purpose of the Gillette special meeting is to consider
and vote upon the following matters:
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1. |
A proposal to adopt the Agreement and Plan of Merger, dated as
of January 27, 2005, among Procter & Gamble,
Aquarium Acquisition Corp., a wholly owned subsidiary of
Procter & Gamble, and Gillette and approve the merger
contemplated by the merger agreement. A copy of the merger
agreement is attached as Annex A to the joint proxy
statement/ prospectus accompanying this notice; and |
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2. |
To transact such other business as may properly come before the
special meeting and any adjournment or postponement thereof. |
Holders of record of Gillette common stock at the close of
business on [ ], 2005 are entitled to receive this notice and to
vote their shares at the special meeting or any adjournment or
postponement of that meeting. As of the record date, there were
[ ] shares
of Gillette common stock outstanding. Each share of common stock
is entitled to vote on each matter properly brought before the
meeting.
If you owned shares on the record date and wish to attend the
special meeting in person, proof of ownership of Gillette common
stock, as well as a form of personal identification, may be
requested in order to be admitted to the meeting. If you are a
shareholder of record, your name can be verified against
Gillettes shareholder list. If your shares are held in the
name of a bank, broker, or other holder of record, you must
obtain a proxy, executed in your favor, from the holder of
record to be admitted to the meeting. If you plan to vote via
proxy and your shares are held in street name,
please note that your broker will not be permitted to vote on
the adoption of the merger agreement and approval of the merger
unless you provide your broker with instructions on how to vote.
A failure to vote is the same as a vote against this proposal.
Your Board of Directors unanimously recommends that you vote
to adopt the merger agreement and approve the merger. Your
attention is directed to the joint proxy statement/ prospectus
accompanying this notice for a discussion of the merger and the
merger agreement.
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By Order of the Board of Directors |
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William J. Mostyn III
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Deputy General Counsel, Secretary and |
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Corporate Governance Officer |
Boston, Massachusetts
[ ],
2005
IMPORTANT
Your vote is important.
Please either (1) mark, sign, date and return the
enclosed proxy card as promptly as possible in the enclosed
postage-paid envelope; (2) use the telephone number shown
on the proxy card to submit your proxy by telephone; or
(3) visit the web site noted on your proxy card to submit
your proxy on the Internet. Remember, your vote is important,
so please act today!
TABLE OF CONTENTS
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I-1 |
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I-3 |
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I-3 |
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I-3 |
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I-4 |
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I-4 |
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I-4 |
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I-5 |
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I-5 |
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I-5 |
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I-6 |
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I-7 |
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PROCTER & GAMBLE AND GILLETTE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENT
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III-7 |
-ii-
-iii-
CHAPTER ONE:
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
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What do I need to do now? |
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After you carefully read this document, mail your signed proxy
card in the enclosed return envelope, or submit your proxy by
telephone or on the Internet, as soon as possible, so that your
shares may be represented at your meeting. In order to assure
that your vote is obtained, please vote your proxy as instructed
on your proxy card even if you currently plan to attend your
meeting in person. |
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Why is my vote important? |
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If you do not return your proxy card or submit your proxy by
telephone or through the Internet or vote in person at your
special meeting, it will be more difficult for
Procter & Gamble and Gillette to obtain the necessary
quorum to hold their special meetings. In addition, if you are a
Procter & Gamble shareholder, your failure to
vote will have the same effect as a vote against the merger
agreement and the issuance of Procter & Gamble common
stock in the merger. If you are a Gillette shareholder,
your failure to vote will have the same effect as a vote
against the merger agreement and the merger. |
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If my shares are held in street name by my
broker, will my broker vote my shares for me? |
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No. If you do not provide your broker with instructions on
how to vote your street name shares, your broker
will not be permitted to vote them on either the adoption of the
merger agreement and approval of the merger by Gillette
shareholders or adoption of the merger agreement and approval of
the issuance of Procter & Gamble common stock by
Procter & Gamble shareholders. You should therefore be
sure to provide your broker with instructions on how to vote
your shares. Please check the voting form used by your broker to
see if it offers telephone or Internet submission of proxies. |
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What if I fail to instruct my broker? |
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If you fail to instruct your broker to vote your shares and the
broker submits an unvoted proxy, the resulting broker
non-vote will be counted toward a quorum at the
respective special meeting, but it will otherwise have the
consequences set forth above under Why is my vote
important? |
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How do I vote my shares if I am a participant in a
Procter & Gamble employee benefit plan? |
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If you are a participant in The Procter & Gamble
Shareholder Investment Program, you can vote shares of
Procter & Gamble common stock held for your account
through the Shareholder Investment Program Custodian. |
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If you are a participant in The Procter & Gamble Profit
Sharing Trust and Employee Stock Ownership Plan, you can
instruct the trustees how to vote the shares of stock that are
allocated to your account. If you do not vote your shares, the
trustees will vote them in proportion to those shares for which
they have received voting instructions. Likewise, the trustees
will vote shares that have not been allocated to any account in
the same manner. |
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Can I change my vote after I have mailed my proxy card? |
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Yes. You can change your vote at any time before your proxy is
voted at your companys special meeting. You can do this in
one of three ways: |
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timely delivery of a valid, later-dated proxy or a
later-dated proxy by telephone or Internet; |
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written notice to your companys Secretary
before the meeting that you have revoked your proxy; or |
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voting by ballot at either the Procter &
Gamble special meeting or the Gillette special meeting. |
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If you have instructed a broker to vote your shares, you must
follow directions from your broker to change those instructions. |
I-1
Chapter One The Merger
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Q: |
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Am I entitled to exercise any dissenters or appraisal
rights in connection with the merger? |
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Under Delaware law, Gillette shareholders are not entitled to
exercise appraisal rights in connection with the merger. Under
Ohio law, however, Procter & Gamble shareholders are
entitled to exercise dissenters rights provided they
follow all of the legal requirements. You should review the
section of this document entitled Dissenters
Rights for further information. |
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When and where are the special meetings? |
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The Procter & Gamble special meeting will take place on
[ ],
2005 at the Procter & Gamble General Offices, Two
Procter & Gamble Plaza, Cincinnati, Ohio 45202 at
[ ],
local time. |
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The Gillette special meeting will take place on
[ ],
2005 at
[ ]
at
[ ],
local time. |
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Q: |
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Should I send in my stock certificates now? |
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A: |
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No. After the merger is completed, Procter &
Gamble will send Gillette shareholders written instructions for
exchanging their stock certificates. Procter & Gamble
shareholders will keep their existing stock certificates. |
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When do you expect the merger to be completed? |
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A: |
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Procter & Gamble and Gillette are working to complete
the merger by the fall of 2005. However, it is possible that
factors outside the control of both companies could result in
the merger being completed at a later time. Procter &
Gamble and Gillette hope to complete the merger as soon as
reasonably practicable. |
|
Q: |
|
Will Procter & Gamble shareholders receive any
shares as a result of the merger? |
|
A: |
|
No. Procter & Gamble shareholders will continue to
hold the Procter & Gamble shares they currently own. |
|
Q: |
|
Who do I call if I have questions about the meetings or the
merger? |
|
A: |
|
Procter & Gamble shareholders may call toll-free
(800) 742-6253. |
|
|
|
Gillette shareholders may call toll-free
[ ]. |
I-2
Chapter One The Merger
SUMMARY
This summary highlights selected information from this joint
proxy statement/ prospectus and may not contain all of the
information that is important to you. To understand the merger
fully and for a more complete description of the legal terms of
the merger agreement, you should carefully read this entire
document and the documents referred to herein. See Where
You Can Find More Information on
page .
The Companies (see
page )
|
|
|
The Procter & Gamble Company |
|
One Procter & Gamble Plaza |
|
Cincinnati, Ohio 45202 |
|
(513) 983-1100 |
|
Internet address: www.pg.com |
Procter & Gamble is a recognized leader in the
development, distribution, and marketing of superior Fabric
Care, Home Care, Baby Care, Feminine Care, Family Care, Beauty
Care, Health Care, and Snacks and Coffee products.
Procter & Gamble has one of the largest and strongest
portfolios of trusted brands, including Pampers®,
Tide®, Ariel®, Always®, Pantene®, Head and
Shoulders®, Wella®, Bounty®, Folgers®,
Pringles®, Charmin®, Downy®, Iams®,
Crest®, Actonel® and Olay®. Procter &
Gamble employs approximately 110,000 people worldwide.
|
|
|
The Gillette Company |
|
Prudential Tower Building |
|
Boston, Massachusetts 02199 |
|
(617) 421-7000 |
|
Internet address: www.gillette.com |
The Gillette Company is the global market leader in nearly a
dozen major consumer products categories, principally in the
grooming, alkaline battery and oral care businesses.
Gillettes leading consumer products include the
Mach3® family, the Venus® family, Sensor®,
Duracell®, Braun®, Gillette Complete Skincare®,
Gillette Series®, Right Guard®, Soft &
Dri®, Dry Idea®, Oral-B® and Rembrandt®.
Gillette employs approximately 28,700 people worldwide.
What Gillette Shareholders Will Receive in the Merger (see
page )
Gillette shareholders will receive 0.975 shares of
Procter & Gamble common stock for each share of
Gillette common stock. Procter & Gamble will not issue
fractional shares in the merger. As a result, the total number
of shares of Procter & Gamble common stock that each
Gillette shareholder will receive in the merger will be rounded
down to the nearest whole number, and each Gillette shareholder
will receive a cash payment for the remaining fraction of a
share of Procter & Gamble stock that he or she would
otherwise receive, if any, based on the market value of
Procter & Gamble common stock at the close of business
on the date the merger becomes effective.
Example: If you currently own 100 shares of Gillette
common stock, you will be entitled to receive 97 shares of
Procter & Gamble common stock and a check for the
market value of 0.5 shares of Procter & Gamble
common stock at the close of business on the date the merger
becomes effective.
Recommendations to Shareholders (see
page )
To Procter & Gamble Shareholders:
Procter & Gambles board of directors believes the
merger is advisable and fair to you and in your best interests
and recommends that you vote FOR the proposal to adopt
the merger agreement and approve the issuance of
Procter & Gamble common stock in the merger.
I-3
Chapter One The Merger
To Gillette Shareholders:
Gillettes board of directors believes the merger is
advisable and fair to you and in your best interests and
recommends that you vote FOR the proposal to adopt the
merger agreement and approve the merger.
Reasons for the Merger (see
page )
The boards of directors of Procter & Gamble and
Gillette believe that this merger will create a leading global
consumer products company with greater product diversity,
geographic breadth, organizational capabilities and financial
resources to take greater advantage of new opportunities and
bring innovative new products to market faster.
The boards of both companies believe that the combined company
will be able to benefit from:
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|
complementary strengths in innovation, selling and go-to-market
capabilities to improve sales growth; |
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|
strengthened line-up of industry leading brands; |
|
|
|
increased scale for better consumer value and lower
costs; and |
|
|
|
enhanced relationships with retail customers. |
As a result, the boards of directors of Procter &
Gamble and Gillette believe the merger will lead to more
consistent and stronger shareholder and consumer value creation
over the long term.
Shareholder Votes Required (see
page )
For Procter & Gamble Shareholders:
Approval of the proposal to adopt the merger agreement and
approve the issuance of Procter & Gamble common stock
in the merger requires the affirmative vote of at least a
majority of the outstanding shares of Procter & Gamble
common stock, Series A ESOP Convertible Class A
Preferred Stock and Series B ESOP Convertible Class A
Preferred Stock, voting together as a single class.
On the record date, directors and executive officers of
Procter & Gamble and their affiliates beneficially
owned or had the right to
vote [ ] shares
of Procter & Gamble common stock,
[ ] shares
of Series A ESOP Convertible Class A Preferred Stock
and
[ ] shares
of Series B ESOP Convertible Class A Preferred Stock,
representing approximately
[ ]%
of the shares entitled to vote at the special meeting. To
Procter & Gambles knowledge, directors and
executive officers of Procter & Gamble and their
affiliates intend to vote their common stock, Series A ESOP
Convertible Class A Preferred Stock and Series B ESOP
Convertible Class A Preferred Stock in favor of the
proposal to adopt the merger agreement and approve the issuance
of Procter & Gamble common stock in the merger.
For Gillette Shareholders:
Adoption of the merger agreement requires the affirmative vote
of at least a majority of the outstanding shares of Gillette
common stock. On the record date, directors and executive
officers of Gillette and their affiliates beneficially owned or
had the right to
vote [ ] shares
of Gillette common stock, representing approximately
[ ]%
of the shares of Gillette common stock outstanding on the record
date. To Gillettes knowledge, directors and executive
officers of Gillette and their affiliates intend to vote their
common stock in favor of the adoption of the merger agreement
and approval of the merger.
The Merger (see
page )
Under the terms of the proposed merger, Aquarium Acquisition
Corp., a wholly owned subsidiary of Procter & Gamble
formed for the purpose of the merger, will be merged with and
into Gillette. As a result, Gillette will continue as the
surviving corporation and will become a wholly owned subsidiary
of
I-4
Chapter One The Merger
Procter & Gamble upon completion of the merger.
Accordingly, Gillette shares will no longer be publicly traded.
The merger agreement is attached as Annex A to this joint
proxy statement/ prospectus. Please read the merger agreement
carefully and fully as it is the legal document that governs the
merger. For a summary of the merger agreement, see The
Merger Agreement on
page .
Treatment of Gillette Stock Options and Other Equity-Based
Awards (see page )
Each outstanding Gillette stock option will become fully-vested
and exercisable immediately prior to the consummation of the
merger. Each outstanding Gillette stock option may be exercised,
in whole or in part, at that time entitling the holder to
receive, at his or her election, either: (1) shares of
Procter & Gamble common stock equal to the number of
Gillette shares deliverable upon exercise of the option
multiplied by the exchange ratio of 0.975 or (2) a cash
payment equal to the number of Procter & Gamble shares
that would have been deliverable upon exercise.
Each Gillette stock option which remains outstanding at the
effective time will be converted into an option to purchase
Procter & Gamble common stock as follows: the number of
shares subject to the option will be multiplied by the exchange
ratio of 0.975 and the exercise price will be divided by the
exchange ratio of 0.975.
Ownership of Procter & Gamble After the Merger
Procter & Gamble will issue approximately
1,046,576,578 shares of Procter & Gamble common
stock to Gillette shareholders in the merger. At the completion
of the merger, it is expected that there will be outstanding
approximately 3.6 billion shares of the combined company.
The shares of Procter & Gamble common stock to be
issued to Gillette shareholders in the merger will represent
approximately 28% of the outstanding Procter & Gamble
common stock after the merger on a fully diluted basis. This
information is based on the number of Procter & Gamble
and Gillette shares and options outstanding on March 7,
2005, taking into consideration anticipated share repurchases
before completion of the merger.
Conditions to the Completion of the Merger (see
page )
The completion of the merger depends upon the satisfaction or
waiver of a number of conditions, including the following:
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|
adoption of the merger agreement and approval of the merger by
the Gillette shareholders and adoption of the merger agreement
and approval of the issuance of Procter & Gamble common
stock in the merger by the Procter & Gamble
shareholders; |
|
|
|
expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and approval of the merger by the European Commission; |
|
|
|
absence of any law, order or injunction in the United States or
European Union prohibiting the merger; |
|
|
|
receipt of opinions of counsel to Procter & Gamble and
Gillette that the merger will qualify as a tax-free
reorganization; |
|
|
|
absence of any pending action or proceeding by a governmental
entity in the United States or European Union seeking to make
the merger illegal or otherwise prohibiting consummation of the
merger; |
|
|
|
material accuracy, as of the closing, of the representations and
warranties made by the parties and material compliance by the
parties with their respective obligations under the merger
agreement; |
|
|
|
that neither party shall have suffered any change that would
reasonably be expected to have a material adverse effect on that
party; and |
I-5
Chapter One The Merger
|
|
|
|
|
holders of not more than 5% of the outstanding common stock of
Procter & Gamble shall have exercised their
dissenters rights under the Ohio General Corporation Law. |
Termination of Merger Agreement (see
page )
Right to Terminate. The merger agreement may be
terminated at any time prior to the effective time in any of the
following ways:
|
|
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|
|
by mutual written consent. |
|
|
|
by either company: |
|
|
|
|
|
if the merger has not been completed by November 30, 2005,
or if the conditions to closing relating to antitrust or other
governmental approvals of the merger have not been satisfied,
but all other conditions to closing are satisfied or are capable
of being satisfied, this date is automatically extended to
February 28, 2006; except that a party may not terminate
the merger agreement if the cause of the merger not being
completed is that partys failure to fulfill its material
obligations under the merger agreement; |
|
|
|
if a governmental authority or a court in the United States or
European Union permanently orders or prohibits the completion of
the merger or a governmental authority in the United States or
European Union fails to grant any necessary approval of the
merger, except that a party may not terminate the merger
agreement if the cause of the prohibition or failure to obtain
approval is a result of that partys failure to fulfill its
obligations under the provision of the merger agreement, which
among other requirements, requires each party to use its
commercially reasonable efforts to obtain government approvals
for the completion of the merger and requires each party to
divest certain assets in response to requirements imposed by
antitrust authorities; |
|
|
|
if either Procter & Gambles shareholders fail to
adopt the merger agreement and approve the issuance of
Procter & Gamble common stock in the merger, or
Gillettes shareholders fail to adopt the merger agreement
and approve the merger; or |
|
|
|
if either party has breached in any material respect any of its
representations or warranties, or has failed to perform in any
material respect any of its covenants or obligations under the
merger agreement and such breach: |
|
|
|
|
|
would result in the failure of certain closing conditions to the
merger being satisfied; and |
|
|
|
is incapable of being cured or remains uncured at
November 30, 2005. |
|
|
|
|
|
if Gillettes board of directors either fails to make or
changes its recommendation in a manner adverse to
Procter & Gamble, or fails to call the Gillette special
meeting to vote on the merger in the manner contemplated by the
merger agreement. |
|
|
|
|
|
if Procter & Gambles board of directors either
fails to make or changes its recommendation in a manner adverse
to Gillette, or fails to call the Procter & Gamble
special meeting to vote on the proposal to adopt the merger
agreement and approve the issuance of Procter & Gamble
common stock in the merger in the manner contemplated by the
merger agreement; |
|
|
|
if Gillettes board of directors authorizes Gillette to
enter into a written agreement concerning a transaction that
Gillettes board of directors has determined in accordance
with the merger agreement is a superior proposal, except that
Gillette cannot terminate the merger agreement for this reason
unless (1) Gillette provides Procter & Gamble with
notice of the existence and terms of the superior proposal, and
a statement as to whether Gillette intends to enter into a
definitive agreement for a business combination,
(2) Procter & Gamble, within four business days of |
I-6
Chapter One The Merger
|
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|
|
receiving such notice from Gillette, does not make an offer that
the board of directors of Gillette determines is at least as
favorable to the Gillette shareholders as the superior proposal
Gillette received from the third party and (3) Gillette
pays Procter & Gamble the termination fee described
below in Termination Fee Payable by
Gillette at or prior to such termination. |
Termination Fee Payable by Gillette. Gillette has agreed
to pay Procter & Gamble a termination fee of
$1.92 billion (within one business day after the earlier of
the date Gillette enters into a definitive agreement with
respect to, or consummates, a business combination), if the
merger agreement is terminated under one of the following
circumstances:
|
|
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|
|
the merger agreement is (1) terminated by
Procter & Gamble because the board of directors of
Gillette withdraws or changes its recommendation in a manner
adverse to Procter & Gamble or for any reason Gillette
fails to call its shareholders meeting in accordance with
the terms of the merger agreement and (2) within twelve
months of the termination, Gillette enters into a definitive
agreement or completes a transaction with respect to a business
combination with a third party; |
|
|
|
the merger agreement is (1) terminated by
Procter & Gamble or Gillette because Gillettes
shareholders failed to adopt the merger agreement (but only if,
prior to the date of the Gillette special meeting, there was
made public an offer or proposal for, or any public announcement
with respect to, a business combination involving Gillette) and
(2) within twelve months of the termination, Gillette
enters into a definitive agreement or completes a transaction
with respect to a business combination with a third
party; or |
|
|
|
the merger agreement is (1) terminated by
Procter & Gamble or Gillette because regulatory
approvals required to complete the merger have not been obtained
by November 30, 2005 (or February 28, 2006, if the
termination date is extended), and at the time of termination
Gillette has not yet obtained its shareholder approval, and
prior to November 30, 2005 (or February 28, 2006, if
the termination date is extended) there has been an offer or
proposal for, or announcement with respect to, a business
combination involving Gillette, and (2) within twelve
months of the termination Gillette enters into a definitive
agreement or completes a transaction with respect to a business
combination with a third party. |
Gillette also has agreed to pay Procter & Gamble the
termination fee of $1.92 billion (at or prior to such
termination), if Gillette terminates the merger agreement
because Gillettes board of directors has authorized
Gillette to enter into a written agreement for a superior
proposal and Procter & Gamble has not, within four
business days of notice from Gillette, made an offer that the
board of directors of Gillette determines is at least as
favorable as the superior proposal Gillette has received from a
third party.
Regulatory Approvals (see
page )
Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, the merger cannot be completed until the
companies have made required notifications, given certain
information and materials to the Federal Trade Commission or to
the Antitrust Division of the United States Department of
Justice and specified waiting period requirements have expired.
Procter & Gamble and Gillette filed the required
notification and report forms with the Antitrust Division and
the Federal Trade Commission.
Procter & Gamble and Gillette each conduct business in
member states of the European Union, and the merger therefore
also requires the review of the European Commission.
Procter & Gamble and Gillette intend to seek approval
of the European Commission for the merger shortly.
Procter & Gamble and Gillette are not permitted to
complete the merger unless the regulatory conditions to
completion of the merger described above are satisfied.
Procter & Gamble and Gillette also have made or expect
to make regulatory filings in a number of other countries
including Mexico, China, Brazil, Canada, Argentina, Bulgaria,
Colombia, Romania, Switzerland, Turkey and South Africa.
I-7
Chapter One The Merger
Material Federal Income Tax Consequences of the Merger (see
page )
It is expected that a Gillette shareholders receipt of
Procter & Gamble common stock in the merger generally
will be tax-free for United States federal income tax purposes,
except for taxes which may result from any receipt of cash in
lieu of fractional shares of Procter & Gamble common
stock.
There will be no United States federal income tax consequences
to a holder of Procter & Gamble stock as a result of
the merger, other than the United States federal income tax
consequences to a holder of Procter & Gamble stock that
exercises dissenters rights in connection with the merger.
The exercise of dissenters rights by a holder of
Procter & Gamble stock in connection with the merger
will generally be a taxable transaction to such holder.
The United States federal income tax consequences described
above may not apply to some holders of Procter & Gamble
and Gillette stock, including some types of holders specifically
referred to on page .
Your tax consequences will depend upon your own personal
situation. Accordingly, please consult your tax advisor for a
full understanding of the particular tax consequences of the
merger to you.
Listing of Procter & Gamble Common Stock
The shares of Procter & Gamble common stock to be
issued in the merger will be listed on the New York Stock
Exchange under the ticker symbol PG.
Dissenters Rights (see
page )
Procter & Gamble shareholders who (1) do not vote
to adopt the merger agreement and approve the issuance of
Procter & Gamble common stock in the merger, and
(2) deliver a written demand for payment of the fair cash
value of their shares of Procter & Gamble stock not
later than ten days after the Procter & Gamble special
meeting, shall be entitled, if and when the merger is completed,
to receive the fair cash value of their shares of
Procter & Gamble common stock. The right as a
Procter & Gamble shareholder to receive the fair cash
value of Procter & Gamble shares of common stock,
however, is contingent upon strict compliance by the dissenting
Procter & Gamble shareholder with the procedures set
forth in Ohio Revised Code Section 1701.85, a copy of which
is attached to this document as Annex E. If you wish to
submit a written demand for payment of the fair cash value of
your Procter & Gamble common stock, you should deliver
your demand no later than
[ ],
2005. Under Delaware law, Gillette shareholders will not have
appraisal rights.
Interests of Certain Persons in the Merger (see
page )
When Gillette shareholders consider their board of
directors recommendation that they vote in favor of the
adoption of the merger agreement and approval of the merger,
Gillette shareholders should be aware that Gillette executive
officers and directors may have interests in the merger that may
be different from, or in addition to, their interests.
Accounting Treatment of the Merger (see
page )
Procter & Gamble will account for the merger under the
purchase method of accounting for business combinations under
accounting principles generally accepted in the United States of
America.
Opinion of Procter & Gambles Financial Advisor
(see page )
In connection with the merger, the Procter & Gamble
board of directors considered the opinion of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Procter &
Gambles financial advisor. Merrill Lynch rendered a
written opinion to the Procter & Gamble board of
directors that, as of January 27, 2005, and based upon and
subject to the factors and assumptions set forth therein, the
exchange ratio of 0.975 was fair from a financial point of view
to Procter & Gamble. This opinion, which is attached as
Annex B, sets forth
I-8
Chapter One The Merger
the procedures followed, assumptions made, matters considered
and limitations on the review undertaken by Merrill Lynch in
providing its opinion. Please read this opinion carefully and in
its entirety.
This opinion is directed to the board of directors of
Procter & Gamble and does not constitute a
recommendation to any shareholder as to how that shareholder
should vote on, or take any other action with respect to, the
merger.
Opinions of Gillettes Financial Advisors (see
page )
Goldman, Sachs & Co. and UBS Securities LLC have
rendered their respective opinions to the Gillette board of
directors that, as of January 27, 2005, and based upon and
subject to the factors, assumptions, procedures, limitations and
qualifications set forth therein, the exchange ratio of 0.975 of
a share of Procter & Gamble common stock to be received
for each share of Gillette common stock pursuant to the merger
agreement was fair from a financial point of view to the holders
of shares of Gillette common stock.
The full text of the opinions of Goldman Sachs and UBS, each
dated January 27, 2005, which set forth assumptions made,
procedures followed, factors considered and limitations and
qualifications on the review undertaken in connection with the
opinions, are attached as Annexes C and D to this joint proxy
statement/ prospectus. The opinions should be read in their
entirety. Goldman Sachs and UBS provided their opinions for the
information and assistance of the Gillette board of directors in
connection with its consideration of the merger. The Goldman
Sachs and UBS opinions are not recommendations as to how any
holder of shares of Gillette common stock should vote with
respect to the merger.
I-9
Chapter One The Merger
Selected Historical Financial Information
The following financial information is provided to assist you in
your analysis of the financial aspects of the merger. The annual
Procter & Gamble historical information is derived from
the consolidated financial statements of Procter &
Gamble as of and for each of the years ended June 30, 2000
through 2004. The annual Gillette historical information is
derived from the consolidated financial statements of Gillette
as of and for each of the years ended December 31, 2000
through 2004. The Procter & Gamble data for the six
months ended December 31, 2004, has been derived from
interim financial statements of Procter & Gamble, and
in the opinion of Procter & Gambles management,
includes all normal and recurring adjustments that are
considered necessary for the fair presentation of the results
for the interim period. The information is only a summary and
should be read in conjunction with each companys
historical consolidated financial statements and related notes
contained in the Procter & Gamble annual report on
Form 10-K for the year ended June 30, 2004, as
conformed to organizational and segment measurement changes
contained in the Procter & Gamble Form 8-K filed
October 22, 2004, and as conformed to present the
reclassification of certain investments from cash and cash
equivalents to investment securities as contained in the
Procter & Gamble Form 8-K filed March 14,
2005, and quarterly report on Form 10-Q for the quarter
ended December 31, 2004, as conformed to present the
reclassification of certain investments from cash and cash
equivalents to investment securities as contained in the Procter
& Gamble Form 8-K filed March 14, 2005, and
the Gillette annual report on Form 10-K for the year ended
December 31, 2004, all of which are incorporated in this
document by reference, as well as other information that has
been filed with the SEC. See Where You Can Find More
Information on
page for information
on where you can obtain copies of this information. The
historical results included below and elsewhere in this document
are not indicative of the future performance of
Procter & Gamble, Gillette or the combined company.
Procter & Gamble Historical Financial Information
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As of and for the | |
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Six Months Ended | |
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December 31, | |
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Year Ended | |
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(Unaudited) | |
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June 30, | |
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| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
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| |
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| |
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| |
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| |
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| |
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| |
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| |
|
|
(in millions, except per share data) | |
Net Sales
|
|
$ |
28,196 |
|
|
$ |
25,416 |
|
|
$ |
51,407 |
|
|
$ |
43,377 |
|
|
$ |
40,238 |
|
|
$ |
39,244 |
|
|
$ |
39,951 |
|
Operating Income
|
|
|
5,940 |
|
|
|
5,385 |
|
|
|
9,827 |
|
|
|
7,853 |
|
|
|
6,678 |
|
|
|
4,736 |
|
|
|
5,954 |
|
Net Earnings
|
|
|
4,040 |
|
|
|
3,579 |
|
|
|
6,481 |
|
|
|
5,186 |
|
|
|
4,352 |
|
|
|
2,922 |
|
|
|
3,542 |
|
Diluted Net Earnings per Common Share
|
|
|
1.47 |
|
|
|
1.28 |
|
|
|
2.32 |
|
|
|
1.85 |
|
|
|
1.54 |
|
|
|
1.03 |
|
|
|
1.23 |
|
Dividends per Common Share
|
|
|
0.50 |
|
|
|
0.46 |
|
|
|
0.93 |
|
|
|
0.82 |
|
|
|
0.76 |
|
|
|
0.70 |
|
|
|
0.64 |
|
Total Assets
|
|
|
63,032 |
|
|
|
53,862 |
|
|
|
57,048 |
|
|
|
43,706 |
|
|
|
40,776 |
|
|
|
34,387 |
|
|
|
34,366 |
|
Long-Term Debt
|
|
|
13,385 |
|
|
|
12,636 |
|
|
|
12,554 |
|
|
|
11,475 |
|
|
|
11,201 |
|
|
|
9,792 |
|
|
|
9,012 |
|
I-10
Chapter One The Merger
Gillette Historical Financial Information
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|
|
|
|
|
As of and for the Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except per share data) | |
Net Sales
|
|
$ |
10,477 |
|
|
$ |
9,252 |
|
|
$ |
8,453 |
|
|
$ |
8,084 |
|
|
$ |
8,310 |
|
Operating Income
|
|
|
2,465 |
|
|
|
2,003 |
|
|
|
1,809 |
|
|
|
1,498 |
|
|
|
1,512 |
|
Net Earnings
|
|
|
1,691 |
|
|
|
1,385 |
|
|
|
1,216 |
|
|
|
910 |
|
|
|
392 |
|
Diluted Net Earnings per Common Share
|
|
|
1.68 |
|
|
|
1.35 |
|
|
|
1.15 |
|
|
|
0.86 |
|
|
|
0.37 |
|
Dividends per Common Share
|
|
|
0.65 |
|
|
|
0.65 |
|
|
|
0.65 |
|
|
|
0.65 |
|
|
|
0.65 |
|
Total Assets
|
|
|
10,731 |
|
|
|
10,041 |
|
|
|
9,883 |
|
|
|
9,961 |
|
|
|
10,246 |
|
Long-Term Debt
|
|
|
2,142 |
|
|
|
2,453 |
|
|
|
2,457 |
|
|
|
1,654 |
|
|
|
1,650 |
|
Selected Unaudited Pro Forma Combined Financial
Information
The merger will be accounted for under the purchase method of
accounting, which means the assets and liabilities of Gillette
will be recorded, as of completion of the merger, at their
respective fair values and added to those of Procter &
Gamble. For a more detailed description of purchase accounting,
see The Proposed Merger Accounting
Treatment on
page .
The selected unaudited pro forma combined financial information
presented below reflects the purchase method of accounting and
is for illustrative purposes only. The selected unaudited pro
forma combined financial information may have been different had
the companies actually been combined. The selected unaudited pro
forma combined financial information does not reflect the effect
of asset dispositions, if any, or revenue, cost or other
operating synergies that may result from the merger, nor does it
reflect the effects of any financing, liquidity or other balance
sheet repositioning that may be undertaken in connection with or
subsequent to the merger. You should not rely on the selected
unaudited pro forma combined financial information as being
indicative of the historical results that would have occurred
had the companies been combined or the future results that may
be achieved after the merger. The following selected unaudited
pro forma combined financial information has been derived from,
and should be read in conjunction with, the Unaudited Pro Forma
Condensed Combined Financial Statements and related notes
included in Chapter Two of this joint proxy statement/
prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of and for the | |
|
|
| |
|
|
Six Months Ended | |
|
|
|
|
December 31, 2004 | |
|
Year Ended June 30, 2004 | |
|
|
| |
|
| |
|
|
(in millions, except per share data) | |
Net Sales
|
|
$ |
33,995 |
|
|
$ |
61,112 |
|
Operating Income
|
|
|
7,127 |
|
|
|
11,886 |
|
Net Earnings
|
|
|
4,852 |
|
|
|
7,901 |
|
Diluted Net Earnings per Common Share
|
|
|
1.30 |
|
|
|
2.09 |
|
Dividends per Common Share
|
|
|
0.50 |
|
|
|
0.93 |
|
Total Assets
|
|
|
128,878 |
|
|
|
|
|
Long-Term Debt
|
|
|
15,527 |
|
|
|
|
|
Comparative Per Share Information
The following table sets forth selected historical per share
information of Procter & Gamble and Gillette and
unaudited combined per share information after giving effect to
the merger between Procter & Gamble and Gillette, under
the purchase method of accounting, assuming that
0.975 shares of Procter & Gamble common stock had
been issued in exchange for each outstanding share of Gillette
common stock. You should read this information in conjunction
with the selected historical financial information, included
I-11
Chapter One The Merger
elsewhere in this document, and the historical financial
statements of Procter & Gamble and Gillette and related
notes that are incorporated in this document by reference. The
unaudited pro forma combined per share information is derived
from, and should be read in conjunction with, the Unaudited Pro
Forma Condensed Combined Financial Statements and related notes
included in Chapter Two of this joint proxy statement/
prospectus. The historical per share information is derived from
audited financial statements as of and for the year ended
June 30, 2004, and unaudited financial statements as of and
for the six months ended December 31, 2004 in the case of
Procter & Gamble and from audited financial statements
as of and for the year ended December 31, 2004, in the case
of Gillette. The unaudited pro forma Procter & Gamble
per share equivalents are calculated by combining the
Procter & Gamble historical share amounts with pro
forma amounts from Gillette, based on the exchange ratio of
0.975.
The unaudited pro forma combined per share information does not
purport to represent what the actual results of operations of
Procter & Gamble and Gillette would have been had the
companies been combined or to project Procter &
Gambles and Gillettes results of operations that may
be achieved after the merger.
Procter & Gamble Historical Financial Data:
|
|
|
|
|
|
|
|
|
|
|
As of and for the | |
|
|
| |
|
|
Six Months Ended | |
|
|
|
|
December 31, 2004 | |
|
Year Ended | |
|
|
(Unaudited) | |
|
June 30, 2004 | |
|
|
| |
|
| |
Net Earnings per Common Share Basic
|
|
$ |
1.57 |
|
|
$ |
2.46 |
|
Net Earnings per Common Share Diluted
|
|
|
1.47 |
|
|
|
2.32 |
|
Cash Dividends
|
|
|
0.50 |
|
|
|
0.93 |
|
Book Value per Common Share Basic
|
|
|
7.88 |
|
|
|
6.79 |
|
Gillette Historical Financial Data:
|
|
|
|
|
|
|
As of and for the | |
|
|
Year Ended | |
|
|
December 31, 2004 | |
|
|
| |
Net Earnings per Common Share Basic
|
|
$ |
1.69 |
|
Net Earnings per Common Share Diluted
|
|
|
1.68 |
|
Cash Dividends
|
|
|
0.65 |
|
Book Value per Common Share Basic
|
|
|
2.86 |
|
Procter & Gamble Unaudited Pro Forma Combined
Financial Data:
|
|
|
|
|
|
|
|
|
|
|
As of and for the | |
|
|
| |
|
|
Six Months Ended | |
|
Year Ended | |
|
|
December 31, 2004 | |
|
June 30, 2004 | |
|
|
| |
|
| |
Net Earnings per Common Share Basic
|
|
$ |
1.37 |
|
|
$ |
2.19 |
|
Net Earnings per Common Share Diluted
|
|
|
1.30 |
|
|
|
2.09 |
|
Cash Dividends
|
|
|
0.50 |
|
|
|
0.93 |
|
Book Value per Common Share Basic
|
|
|
20.92 |
|
|
|
|
|
I-12
Chapter One The Merger
Comparative Per Share Market Price and Dividend
Information
Procter & Gamble common stock and Gillette common stock
are each listed on the New York Stock Exchange.
Procter & Gambles and Gillettes ticker
symbols are PG and G, respectively. The
following table shows, for the calendar quarters indicated,
based on published financial sources: (1) the high and low
sale prices of shares of Procter & Gamble and Gillette
common stock as reported on the New York Stock Exchange
Composite Transaction Tape and (2) the cash dividends per
share of Procter & Gamble and Gillette common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Procter & Gamble | |
|
Gillette | |
|
|
Common Stock* | |
|
Common Stock | |
|
|
| |
|
| |
|
|
High | |
|
Low | |
|
Dividends | |
|
High | |
|
Low | |
|
Dividends | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
45.00 |
|
|
$ |
39.79 |
|
|
$ |
0.205 |
|
|
$ |
32.34 |
|
|
$ |
28.00 |
|
|
$ |
0.1625 |
|
|
Second Quarter
|
|
|
46.27 |
|
|
|
43.80 |
|
|
|
0.205 |
|
|
|
33.78 |
|
|
|
29.80 |
|
|
|
0.1625 |
|
|
Third Quarter
|
|
|
46.72 |
|
|
|
43.26 |
|
|
|
0.2275 |
|
|
|
33.57 |
|
|
|
29.75 |
|
|
|
0.1625 |
|
|
Fourth Quarter
|
|
|
49.97 |
|
|
|
46.41 |
|
|
|
0.2275 |
|
|
|
36.78 |
|
|
|
30.80 |
|
|
|
0.1625 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
53.61 |
|
|
$ |
48.89 |
|
|
$ |
0.2275 |
|
|
$ |
39.95 |
|
|
$ |
35.01 |
|
|
$ |
0.1625 |
|
|
Second Quarter
|
|
|
56.34 |
|
|
|
51.64 |
|
|
|
0.25 |
|
|
|
43.78 |
|
|
|
37.75 |
|
|
|
0.1625 |
|
|
Third Quarter
|
|
|
56.95 |
|
|
|
51.50 |
|
|
|
0.25 |
|
|
|
43.30 |
|
|
|
37.77 |
|
|
|
0.1625 |
|
|
Fourth Quarter
|
|
|
57.40 |
|
|
|
50.53 |
|
|
|
0.25 |
|
|
|
45.70 |
|
|
|
39.10 |
|
|
|
0.1625 |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
(through [ ], 2005) |
|
$ |
[ ] |
|
|
$ |
[ ] |
|
|
$ |
[ ] |
|
|
$ |
[ ] |
|
|
$ |
[ ] |
|
|
$ |
[ ] |
|
|
|
* |
Sales prices and dividends per share were adjusted, as needed,
to reflect a 2 for 1 stock split effected May 21, 2004 |
Recent Closing Prices
The following table sets forth the closing prices per share of
Procter & Gamble common stock and Gillette common stock
as reported on the New York Stock Exchange Composite Transaction
Tape on January 27, 2005, the last full trading day prior
to the announcement of the merger agreement, and
[ ],
2005, the most recent practicable date prior to the mailing of
this joint proxy statement/ prospectus to Procter &
Gambles and Gillettes shareholders. This table also
sets forth the equivalent price per share of Gillette common
stock on those dates. The equivalent price per share is equal to
the closing price of a share of Procter & Gamble common
stock on that date multiplied by 0.975, the applicable exchange
ratio in the merger. These prices will fluctuate prior to the
special meetings and the merger, and shareholders are urged to
obtain current market quotations prior to making any decision
with respect to the merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gillette Common | |
|
|
Procter & Gamble | |
|
Gillette Common | |
|
Stock per share | |
Date |
|
Common Stock | |
|
Stock | |
|
Equivalent | |
|
|
| |
|
| |
|
| |
January 27, 2005
|
|
$ |
55.32 |
|
|
$ |
45.85 |
|
|
$ |
53.937 |
|
[ ], 2005
|
|
|
[ |
] |
|
|
[ |
] |
|
|
[ |
] |
Although dividends are subject to future approval and
declaration by Procter & Gambles and
Gillettes respective boards of directors,
Procter & Gamble and Gillette each currently plan to
continue to pay regular dividends on their common stock until
closing of the merger. The dividend policy following the merger
will be determined by Procter & Gambles board of
directors.
I-13
Chapter One The Merger
RISK FACTORS
Procter & Gamble and Gillette shareholders should
carefully consider the following factors, in addition to those
factors discussed in the other documents filed with the
Securities and Exchange Commission and which have been
incorporated into this document and the other information in
this joint proxy statement/ prospectus, before voting at their
respective special meetings.
The Value of Procter & Gamble Shares Received Will
Fluctuate
The number of shares of Procter & Gamble common stock
issued in the merger for each share of Gillette common stock is
fixed. The market prices of Procter & Gamble common
stock and Gillette common stock when the merger is completed may
vary from their market prices at the date of this document and
at the date of the special meetings of Procter & Gamble
and Gillette. For example, during the 12-month period ending on
[ ],
2005, the most recent practical date prior to the mailing of
this joint proxy statement/ prospectus, Procter &
Gamble common stock traded in a range from a low of
$[ ]
to a high of
$[ ]
and ended that period at
$[ ],
and Gillette common stock traded in a range from a low of
$[ ]
to a high of
$[ ]
and ended that period at
$[ ].
See Comparative Per Share Market Price and Dividend
Information on
page for more
detailed share price information.
These variations may be the result of various factors including:
|
|
|
|
|
changes in the business, operations or prospects of
Procter & Gamble or Gillette; |
|
|
|
governmental and/or litigation developments and/or regulatory
considerations; |
|
|
|
market assessments as to whether and when the merger will be
consummated; |
|
|
|
governmental action affecting the consumer products industry
generally; and |
|
|
|
general market and economic conditions. |
The merger may not be completed until a significant period of
time has passed after the Procter & Gamble and Gillette
special meetings. At the time of their respective special
meetings, Procter & Gamble and Gillette shareholders
will not know the exact value of the Procter & Gamble
common stock that will be issued in connection with the merger.
Shareholders of Procter & Gamble and Gillette are urged
to obtain current market quotations for Procter &
Gamble and Gillette common stock.
Gillette Shareholders Will Have a Reduced Ownership and
Voting Interest After the Merger
After the mergers completion, Gillette shareholders will
own a significantly smaller percentage of Procter &
Gamble than they currently own of Gillette. Consequently,
Gillette shareholders may be able to exercise less influence
over the management and policies of Procter & Gamble
than they currently exercise over the management and policies of
Gillette.
The Combined Company May Be Unable to Successfully Integrate
Operations and Realize the Full Anticipated Cost Savings
The merger involves the integration of two companies that have
previously operated independently. The difficulties of combining
the companies operations include:
|
|
|
|
|
the necessity of coordinating geographically separated
organizations, systems and facilities; and |
|
|
|
integrating personnel with diverse business backgrounds. |
The process of integrating operations could cause an
interruption of, or loss of momentum in, the activities of one
or more of the combined companys businesses and the loss
of key personnel. The diversion of managements attention
and any delays or difficulties encountered in connection with the
I-14
Chapter One The Merger
merger and the integration of the two companies operations
could have an adverse effect on the business, results of
operations, financial condition or prospects of the combined
company after the merger.
Among the factors considered by the Procter & Gamble
and the Gillette boards of directors in connection with their
respective approvals of the merger agreement were the
opportunities for operating efficiencies that could result from
the merger. Procter & Gamble and Gillette cannot give
any assurance that these savings will be realized within the
time periods contemplated or even if they will be realized at
all.
The Combined Company Will Incur Significant Transaction and
Merger-Related Costs in Connection with the Merger
Transaction
Procter & Gamble and Gillette expect to incur costs
associated with combining the operations of the two companies,
transaction fees and other costs related to the merger. These
costs include an anticipated cost between
$[ ]
and
$[ ]
for transaction and merger-related costs. This amount is a
preliminary estimate and subject to change. Additional
unanticipated costs may be incurred in the integration of the
businesses of Procter & Gamble and Gillette. Although
Procter & Gamble and Gillette expect that the
elimination of duplicative costs, as well as the realization of
other efficiencies related to the integration of the businesses
may offset incremental transaction and merger-related costs over
time, Procter & Gamble and Gillette cannot give any
assurance that this net benefit will be achieved in the near
term, or at all.
The Merger May Cause Dilution to Procter & Gamble
Earnings Per Share
The merger and the transactions contemplated by the merger
agreement will have a dilutive effect on earnings per share of
Procter & Gamble common stock in the short-term (e.g.,
for approximately two years) due to the additional shares of
Procter & Gamble common stock that will be issued in
the merger, the transaction and integration-related costs or
other factors such as the failure to realize any benefit from
synergies anticipated in the merger. This could adversely affect
the market price of Procter & Gamble common stock.
Obtaining Required Approvals and Satisfying Closing
Conditions May Delay or Prevent Completion of the Merger
Completion of the merger is conditioned upon the receipt of all
material governmental authorizations, consents, orders and
approvals, including the expiration or termination of the
applicable waiting periods, and any extension of the waiting
periods, under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and approval by the European
Commission. Procter & Gamble and Gillette intend to
pursue all required approvals in accordance with the merger
agreement. The requirement for these approvals could delay the
completion of the merger for a significant period of time after
Procter & Gamble and Gillette shareholders have
approved the proposals relating to the merger at their
respective special meetings. See The Merger
Agreement Conditions on
page for a discussion
of the conditions to the completion of the merger and The
Proposed Merger Regulatory Matters Relating to the
Merger on page
for a description of the regulatory approvals necessary in
connection with the merger. No assurance can be given, however,
that these approvals will be obtained or that the required
conditions to closing will be satisfied, and, if all such
approvals are obtained and the conditions are satisfied, no
assurance can be given as to the terms, conditions and timing of
the approvals or that they will satisfy the terms of the merger
agreement.
Certain Directors and Executive Officers of Gillette May Have
Potential Conflicts of Interests
Certain directors and executive officers may have interests that
differ from yours. Following the completion of the merger, James
M. Kilts will be a vice chairman of Procter & Gamble
and entered into an amendment to his employment agreement
concurrently with the execution of the merger agreement that is
described under The Proposed Merger Interests
of Certain Persons in the Merger. Other
I-15
Chapter One The Merger
executive officers of Gillette are subject to agreements and
arrangements that may be affected by the merger in accordance
with their terms that are also described under The
Proposed Merger Interests of Certain Persons in the
Merger. Gillette directors will be entitled to
continuation of indemnification and insurance arrangements under
the merger agreement. You should be aware of these interests
when you consider your board of directors recommendation
that you vote in favor of the merger.
I-16
Chapter One The Merger
FORWARD-LOOKING STATEMENTS
Procter & Gamble and Gillette have made forward-looking
statements in this document, and in documents that are
incorporated by reference in this document, that are subject to
risks and uncertainties. These statements are based on the
beliefs and assumptions of each companys management.
Generally, forward-looking statements include information
concerning possible or assumed future actions, events or results
of operations of Procter & Gamble, Gillette and the
combined company. Forward-looking statements specifically
include, without limitation, the information in this document
regarding: projections; efficiencies/cost avoidance; cost
savings; income and margins; earnings per share; growth;
economies of scale; combined operations; the economy; future
economic performance; conditions to, and the timetable for,
completing the merger; future acquisitions and dispositions;
litigation; potential and contingent liabilities;
managements plans; business portfolios; taxes; and merger
and integration-related expenses.
Forward-looking statements may be preceded by, followed by or
include the words believes, expects,
anticipates, intends, plans,
estimates or similar expressions. Procter &
Gamble and Gillette claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 for all forward-looking statements.
Forward-looking statements are not guarantees of performance.
You should understand that the following important factors, in
addition to those discussed in Risk Factors above
and elsewhere in this document, and in the documents which are
incorporated by reference in this document, could affect the
future results of Procter & Gamble and Gillette, and of
the combined company after the completion of the merger, and
could cause those results or other outcomes to differ materially
from those expressed or implied in the forward-looking
statements:
|
|
|
|
|
the ability to achieve business plans, including with respect to
lower income consumers and growing existing sales and volume
profitably despite high levels of competitive activity,
especially with respect to the product categories and
geographical markets (including developing markets) in which the
combined company has chosen to focus; |
|
|
|
the ability to successfully execute, manage and integrate key
acquisitions and mergers, including Wella A.G. (in the case of
Procter & Gamble) and the merger; |
|
|
|
the ability to manage and maintain key customer relationships; |
|
|
|
the ability to maintain key manufacturing and supply sources
(including sole supplier and plant manufacturing sources); |
|
|
|
the ability to successfully manage regulatory, tax and legal
matters (including product liability, patent and other
intellectual property matters), and to resolve pending matters
within current estimates; |
|
|
|
the ability to successfully implement, achieve and sustain cost
improvement plans in manufacturing and overhead areas, including
outsourcing projects; |
|
|
|
the ability to successfully manage currency (including currency
issues in volatile countries), debt (including debt related to
Procter & Gambles share repurchase plan),
interest rate and certain commodity cost exposures; |
|
|
|
the ability to manage the continued global political and/or
economic uncertainty and disruptions, especially in the combined
companys significant geographical markets, as well as any
political and/or economic uncertainty and disruptions due to
terrorist activities; |
|
|
|
the ability to successfully manage the pattern of its sales,
including the variation in sales volume within periods; |
|
|
|
the ability to successfully manage competitive factors,
including prices, promotional incentives and trade terms for its
products; |
I-17
Chapter One The Merger
|
|
|
|
|
the ability to obtain patents and respond to technological
advances attained by competitors and patents granted to
competitors; |
|
|
|
the ability to successfully manage increases in the prices of
raw materials used to make the combined companys products; |
|
|
|
the ability to stay close to consumers in an era of increased
media fragmentation; and |
|
|
|
the ability to stay on the leading edge of innovation. |
I-18
Chapter One The Merger
THE PROPOSED MERGER
General
Procter & Gambles board of directors is using
this joint proxy statement/ prospectus to solicit proxies from
the holders of Procter & Gamble common stock,
Series A ESOP Convertible Class A Preferred Stock
(Series A ESOP Preferred Stock), and
Series B ESOP Convertible Class A Preferred Stock
(Series B ESOP Preferred Stock) for use at the
Procter & Gamble special meeting. Gillettes board
of directors is also using this document to solicit proxies from
the holders of Gillette common stock for use at the Gillette
special meeting.
Procter & Gamble Proposal
At the Procter & Gamble special meeting, holders of
Procter & Gamble common stock, Series A ESOP
Preferred Stock, and Series B ESOP Preferred Stock will be
asked to vote upon the adoption of the merger agreement and the
approval of the issuance of Procter & Gamble common
stock in the merger.
The merger will not be completed unless Procter &
Gambles shareholders adopt the merger agreement and
approve the issuance of Procter & Gamble common stock
in the merger.
Gillette Proposal
At the Gillette special meeting, holders of Gillette common
stock will be asked to vote upon the adoption of the merger
agreement and approval of the merger.
The merger will not be completed unless Gillettes
shareholders adopt the merger agreement and approve the
merger.
Background of the Merger
During the past several years, senior management and the board
of directors of Gillette have regularly reviewed the
companys strategic growth objectives and means of
achieving those objectives, including potential strategic
initiatives and various business combinations. In particular,
Gillettes senior management and board of directors have
focused on Gillettes long term ability to compete in the
consumer products market and Gillettes reliance on its
blades and razors business. Gillettes senior management
and board of directors considered whether an appropriate
business combination would provide an increase in scale that
would enable Gillette to more effectively address market
demands, achieve cost and operating efficiencies, diversify its
portfolio of products and obtain other benefits.
In April of 2002, after discussion with, and approval of, the
Gillette board of directors, James M. Kilts, Chairman, President
and Chief Executive Officer of Gillette, approached the chief
executive officer of a major consumer products company with
respect to a potential business combination with that company.
Given the complementary strengths of the two companies and the
possible benefits of a business combination, senior management
of the two companies engaged in preliminary discussions during
the spring of 2002, and meetings were held between senior
managements of the two companies. At the time, senior management
of Gillette was considering a merger-of-equals approach to a
possible transaction with that company. In the course of these
discussions, the parties determined that they had substantially
differing views as to their respective valuations and that
significant differences existed regarding certain issues
relating to the management and culture of the combined company.
The parties therefore terminated discussions with respect to a
possible transaction.
In May of 2004, senior management of Gillette, together with its
financial and legal advisors, re-examined the possibility of a
business combination with the same company in connection with
Gillettes continuing strategic review of its business and
prospects. Based on Gillettes strong financial performance
and progress with respect to its business initiatives, together
with the performance of the potential merger partner since the
period of the discussions in 2002, Gillettes senior
management proposed to renew its exploration of a business
combination with that company but this time on the basis of an
acquisition of that company by Gillette.
I-19
Chapter One The Merger
On June 17, 2004, at a regularly scheduled meeting of the
Gillette board of directors, Gillettes senior management
updated the board on the strategic implications and possible
benefits and risks of a potential business combination. The
board was supportive of managements proposal to undertake
a detailed analysis of the business combination and, if
warranted following such analysis, re-engaging in discussions
with that company to explore a possible business combination.
During the summer of 2004, Mr. Kilts engaged in a
discussion with the other companys chief executive officer
with respect to a possible acquisition by Gillette, but the
parties were unable to make meaningful progress in that
discussion due to valuation and other differences. Following
this discussion, no further discussions were held between the
parties due to the other partys lack of response and the
resulting judgment of Gillettes management that pursuing
such transaction was unlikely to be productive. Subsequently,
Gillettes senior management began to preliminarily
consider other potential business combinations, including a
transaction with Procter & Gamble.
On September 17, 2004, at a regularly scheduled meeting of
the Gillette board of directors, Gillettes senior
management updated the board on the lack of progress with the
other consumer products company and the board of directors was
informed that Gillettes senior management did not
recommend continuing to pursue the possibility of a business
combination with that company. In addition, Gillettes
senior management discussed with the board the possibility of
exploring a business combination with Procter & Gamble
and the board of directors approved the suggestion that senior
management move forward with its evaluation. Following the board
meeting, Gillettes senior management, together with its
advisors, carefully considered a possible business combination
with Procter & Gamble.
On October 21, 2004, at a regularly scheduled meeting of
the Gillette board of directors, management provided its
preliminary analysis of the possibility, risks and possible
strategic and financial benefits of a business combination with
Procter & Gamble. Goldman Sachs and UBS made
presentations to the board concerning various aspects of such a
combination. After representatives of Goldman Sachs and UBS left
the board meeting, Davis Polk & Wardwell, legal counsel
to Gillette, discussed the fiduciary duties of the directors as
well as certain other legal issues in connection with such a
combination. At the conclusion of the meeting, the board
authorized Gillettes senior management to initiate contact
with Procter & Gamble concerning a possible business
combination.
In early November of 2004, Mr. Kilts called Warren E.
Buffett, Chairman and Principal Executive Officer of Berkshire
Hathaway, Inc., which at that time beneficially owned
approximately 9.7% of Gillettes outstanding common stock.
During the call, Mr. Kilts asked Mr. Buffett if he
would consent to the receipt of material non-public information,
recognizing that this would restrict his flexibility to effect
transactions in the securities of Gillette. After
Mr. Buffett so consented, Mr. Kilts solicited his
views with respect to a possible business combination between
Gillette and Procter & Gamble. Mr. Kilts reviewed
the strategic rationale, possible benefits and risks of the
transaction and the analysis that Gillette had completed to
date. Mr. Buffett indicated that he would be supportive of
a transaction with Procter & Gamble that provided
appropriate value to Gillette shareholders.
On November 5, 2004, Mr. Kilts called A.G. Lafley,
Chairman of the Board, President and Chief Executive of
Procter & Gamble to propose that the companies explore
a potential business combination. Mr. Lafley agreed to meet
with Mr. Kilts to discuss the matter further.
On November 12, 2004, Mr. Lafley and Mr. Kilts
met and discussed a possible business combination. At this
meeting, Mr. Kilts provided Mr. Lafley with certain
publicly available information with respect to Gillette. Also at
this meeting, Mr. Lafley and Mr. Kilts discussed Mr.
Kilts willingness to continue his employment during a
transition period with the combined company and to roll over his
options into Procter & Gamble stock and retain them for a
reasonable period of time. Following this meeting, over the
course of the next several days, at Mr. Lafleys
direction, certain senior executives of Procter &
Gamble analyzed the potential acquisition. In 1999,
Procter & Gamble had considered the possibility of
acquiring Gillette and was generally familiar with
Gillettes brands and operations. Based on its prior
knowledge of Gillette and the preliminary discussions with
Mr. Kilts, the Procter & Gamble executives
determined that the potential acquisition had strategic value.
I-20
Chapter One The Merger
On November 15, 2004, Mr. Lafley informed Norman R.
Augustine, Procter & Gambles Presiding Director
and Chairman of its Compensation & Leadership
Development Committee, about his discussions with Mr. Kilts.
On November 16, 2004, Procter & Gamble and
Gillette executed a confidentiality agreement, which included
customary standstill provisions.
Also, on November 16, 2004, Procter & Gamble
engaged Merrill Lynch as its financial advisor to assist in the
evaluation of the potential transaction with Gillette. Later
that day, representatives from Procter & Gamble
contacted the law firm of Cadwalader, Wickersham & Taft
LLP, which was engaged, to assist Procter & Gamble with
respect to legal matters related to the potential acquisition,
and the law firm of Jones Day was retained to assist with
antitrust and regulatory matters.
On November 17, 2004, the board of directors of
Procter & Gamble held a telephonic meeting during which
Mr. Lafley and other members of Procter &
Gambles management team updated the outside directors on
Mr. Lafleys discussions with Mr. Kilts and the
possibility of acquiring Gillette. Management of
Procter & Gamble discussed with members of the board of
directors their initial assessment of Gillettes business
and the potential risks and benefits of a potential acquisition
of Gillette. The board of directors then authorized
Mr. Lafley and other members of senior management to
continue discussions with Gillette and to move forward with the
due diligence process.
Later in the afternoon of November 17, 2004, members of the
senior management of Procter & Gamble and
representatives of Merrill Lynch met with members of the senior
management of Gillette and representatives of Goldman Sachs and
UBS to discuss Gillettes financial performance and other
due diligence matters. During this meeting, Gillette informed
Procter & Gamble that it would have restricted access
to Gillettes personnel and technology throughout the due
diligence process.
On November 18, 2004, Procter & Gamble engaged
McKinsey & Company to assist management in connection
with its analysis of potential deal synergies to complement its
own due diligence.
Also, on November 18, 2004, members of the senior
management of Gillette met with members of senior management of
Procter & Gamble. The parties conducted preliminary due
diligence and discussed a process and timing for additional due
diligence. Following that meeting, Gillette provided additional
due diligence materials to Procter & Gamble.
On November 22, 2004, senior executives from
Procter & Gamble and Gillette, along with their
respective legal and financial advisors, met to conduct
preliminary due diligence concerning legal and intellectual
property matters, and to discuss other preliminary matters
related to the potential acquisition.
On November 23, 2004, members of the senior management of
Procter & Gamble and representatives of
McKinsey & Company and Merrill Lynch met with members
of the senior management of Gillette and representatives from
Goldman Sachs and UBS to conduct due diligence concerning
technology and business plans for the blades and razors and
batteries businesses.
On November 26, 2004, members of the senior management of
Procter & Gamble met with members of the senior
management of Gillette to discuss outstanding issues resulting
from the previous due diligence meetings.
On November 30, 2004, Cadwalader, Wickersham &
Taft LLP circulated an initial draft of the merger agreement to
Davis Polk & Wardwell. On the same day,
Procter & Gamble engaged the law firm of
Covington & Burling to assist in certain matters
related to the potential transaction.
On December 1, 2004, a special meeting of the
Procter & Gamble board of directors was held during
which Mr. Lafley, Clayton C. Daley Jr., Procter &
Gambles Chief Financial Officer, and other members of
Procter & Gamble management updated the outside
directors on the status of the negotiations with Gillette and
reviewed and discussed considerations related to, and the
potential merits of, the potential acquisition, including the
strengths and weaknesses of each of Gillettes business
segments, potential legal
I-21
Chapter One The Merger
and regulatory issues and matters related to valuation,
including cost and revenue synergies. Management reported that
it believed Gillette expected an offer equivalent to at least
$55 per share. The board of directors then considered the
strategic fit, potential dilution/accretion, stock price,
valuation risks and credit rating impacts of the transaction at
various price points, as well as alternative transactions that
might be foreclosed by consummating a transaction with Gillette.
After a lengthy discussion, management recommended, and the
board of directors then agreed, to continue the process. The
board of directors authorized management to make an offer to
Gillette at a price roughly equivalent to $50 per share.
Also, on December 1, 2004, representatives from Davis
Polk & Wardwell and Cadwalader, Wickersham &
Taft LLP discussed Gillettes initial reactions to certain
provisions contained in the draft merger agreement circulated by
Cadwalader, Wickersham & Taft LLP the previous day and
identified certain issues raised by the proposed draft.
On December 2, 2004, Mr. Daley and representatives of
Merrill Lynch met with Charles W. Cramb, Gillettes Chief
Financial Officer, and representatives of Goldman Sachs and UBS
to discuss the potential transaction. During this meeting,
Mr. Daley proposed to Mr. Cramb an all stock
transaction at an exchange ratio of 0.915 shares of
Procter & Gamble common stock for each outstanding
Gillette share or a price equivalent to slightly more than
$50 per Gillette share. Mr. Cramb responded that
Gillette management would not recommend this transaction to the
Gillette board of directors and indicated that a substantially
higher value would be required for Gillette to proceed.
Negotiations over the valuation issues continued over the next
two days but the parties were unable to reach an agreement
regarding valuation.
On December 4, 2004, Mr. Kilts and Mr. Lafley
held a phone discussion and agreed to terminate the discussions.
Thereafter, on December 6, 2004, Gillette sent a letter to
Procter & Gamble requesting in accordance with the
terms of the confidentiality agreement that Procter &
Gamble return all of the confidential information that Gillette
had provided in connection with Procter & Gambles
consideration of the transaction. Procter & Gamble also
sent a similar request to Gillette. In addition, Mr. Kilts
subsequently updated Mr. Buffett as to the termination of
discussions with Procter & Gamble.
On December 14, 2004, at a regular meeting of the
Procter & Gamble board of directors,
Messrs. Lafley and Daley informed the outside directors
that discussions between the parties had terminated, but that
management and Procter & Gambles financial
advisors continued to analyze potential cost and growth
synergies and monitor any future developments.
On December 16, 2004, at a meeting of the Gillette board of
directors, senior management updated the board on the
termination of the discussions with Procter & Gamble
and the reasons therefor.
On December 17, 2004, Messrs. Lafley and Daley met
with Mr. Buffett in Omaha, Nebraska, during which they
discussed the strategic attractiveness and growth potential of
the Gillette businesses, with primary focus on the blades,
razors and batteries segments. Mr. Buffett expressed his
support for a potential acquisition if such a transaction could
be concluded.
On January 4, 2005, Henry M. Paulson, Jr., Chairman of
the Board and Chief Executive Officer of Goldman Sachs, called
Mr. Lafley to discuss the long-term strategic value of the
potential acquisition and to request that Procter &
Gamble reconsider its position.
Following Mr. Lafleys conversation with
Mr. Paulson, Procter & Gamble began to explore
options for re-engaging with Gillette. On January 5, 2005,
Mr. Lafley consulted with Mr. Augustine, who
encouraged Procter & Gamble to re-open discussions.
On January 11, 2005, at a regular meeting of the
Procter & Gamble board of directors,
Messrs. Lafley and Daley updated the outside directors
about the recent discussions Mr. Lafley had with
Mr. Paulson. The board of directors then authorized
management to resume discussions with Gillette.
At Mr. Lafleys request, Rajat Gupta, the former
Managing Director of McKinsey & Company, called
Mr. Kilts on January 12, 2005, and met with him on
January 13, 2005, to explore the possibility of resuming
discussions between Gillette and Procter & Gamble. As a
result of these discussions, on
I-22
Chapter One The Merger
January 15, 2005, Mr. Kilts and Mr. Lafley had a
phone conversation and agreed to recommence discussions with
respect to a possible acquisition.
On January 17, 2005, members of senior management of
Gillette and Procter & Gamble met to discuss the
potential acquisition synergies, other value creation
opportunities and the state of Gillettes technology,
particularly in the blades and razors business. During this
meeting, the two sides agreed to conduct the negotiations based
on a fixed exchange ratio. Representatives of Gillette indicated
they would consider an exchange ratio of one share of
Procter & Gamble stock for each share of Gillette stock.
On January 18, 2005, Mr. Lafley telephoned
Mr. Kilts and proposed an exchange ratio of
0.950 shares of Procter & Gamble stock for each
Gillette share. Mr. Kilts expressed disappointment that
Procter & Gamble did not meet his request for a
one-for-one exchange ratio, but indicated he would consider
Mr. Lafleys offer. Later that evening, after
discussions with members of Gillettes senior management
and financial advisors, Mr. Kilts called Mr. Lafley
and informed him that an exchange ratio of 0.950 did not
appropriately value Gillettes business, franchise and
prospects. Following these calls, Mr. Lafley again updated
Mr. Augustine.
Between January 19, 2005 and January 21, 2005,
Mr. Lafley had several telephone conversations with
Mr. Paulson, Mr. Gupta and Mr. Stan ONeal,
Merrill Lynchs Chief Executive Officer, regarding the
strategic opportunities presented by the potential acquisition.
On January 19, 2005, Procter & Gamble engaged
Mr. Andrew Shore, a former analyst with Deutsche Bank, as a
consultant on the potential transaction.
On January, 20, 2005, Mr. Lafley sent a letter to the
members of the board of directors of Procter & Gamble
describing the status of the discussions with Gillette.
On January 21, 2005, Mr. Kilts telephoned
Mr. Lafley and proposed an exchange ratio of
0.975 shares of Procter & Gamble stock for each
Gillette share. After consulting with Messrs. Augustine and
Daley, Mr. Lafley agreed to recommend to Procter &
Gambles board of directors the proposed financial terms
offered by Mr. Kilts, subject to completion of due
diligence and negotiation of a mutually acceptable merger
agreement. Later that day, Davis Polk & Wardwell
delivered a revised draft of the merger agreement to Cadwalader,
Wickersham & Taft LLP.
During the course of January 22-23, 2005, the parties and their
advisors engaged in numerous discussions concerning the terms of
the merger agreement. Throughout this period,
Messrs. Augustine and Lafley spoke several times regarding
the strategic importance of the proposed transaction.
On January 22, 2005, Mr. Augustine, with assistance
from members of Procter & Gamble management and later
from Procter & Gambles Compensation &
Leadership Development Committees special counsel for the
transaction, Sullivan & Cromwell LLP and Cadwalader,
Wickersham & Taft LLP, began negotiations concerning
the amendment of Mr. Kilts existing employment
agreement with Gillette. These negotiations focused on amending
the employment agreement to reflect Procter &
Gambles desire to provide that, following the consummation
of the proposed merger, Mr. Kilts would be employed by
Procter & Gamble during an integration period and
become subject to certain non-competition restrictions following
such employment and significant restrictions on his ability to
exercise Procter & Gamble stock options or to sell any
Procter & Gamble stock. The parties also discussed
other terms of his employment, including his compensation and
other benefits. The negotiations between Mr. Kilts and
Procter & Gamble with respect to the terms of his
post-merger employment continued until the signing of the
amendment to the employment agreement on January 27, 2005,
concurrently with the signing of the merger agreement.
On January 23, 2005, at a special telephonic meeting of the
Procter & Gamble board of directors, Mr. Lafley
again updated the outside directors on the status of the
potential acquisition. Members of the board of directors and
management discussed additional value creation opportunities,
revised dilution/accretion calculations, the status of contract
negotiations and Procter & Gambles preliminary
I-23
Chapter One The Merger
communication strategy. The board of directors also discussed
plans for an additional meeting to be held on January 27,
2005.
On January 25, 2005, a meeting was held between the senior
managements of Gillette and Procter & Gamble and their
respective financial advisors during which Gillette management
conducted due diligence with respect to Procter &
Gambles business, financial condition and operations,
including a presentation by Mr. Lafley with respect to
business and financial affairs of Procter & Gamble.
Following this meeting, Mr. Lafley called Mr. Buffett
to inform him that the parties had agreed in principle on the
financial terms and to inquire as to whether Mr. Buffett
would be willing to convey his views of the proposed
transaction, portions of which would be used in the press
release announcing the transaction and during analyst meetings.
Mr. Buffett agreed to do so. The parties continued
negotiations and their due diligence reviews until the signing
of the merger agreement on January 27, 2005.
Also, on January 25, 2005, the Gillette board of directors
held a special meeting, which was attended by Gillettes
senior management and Gillettes financial and legal
advisors. Mr. Kilts advised the board of the events that
had transpired since the December board meeting with respect to
the potential transaction and the current status of the
negotiations. Gillettes senior management provided the
board with a report on its review of Procter &
Gambles business, strategy and financial information.
After the financial advisors to Gillette were excused,
representatives of Davis Polk & Wardwell discussed the
directors fiduciary duties in connection with the proposed
transaction and presented a detailed summary of the terms of the
merger agreement. The board of directors, management and legal
advisors discussed significant open issues. In connection with
the discussion of the open issues, members of the board stated
that without acceptable resolution of certain major issues
relating to the certainty of closing, they would not support the
transaction. In addition, representatives of Davis
Polk & Wardwell summarized the discussions between
Mr. Kilts and Procter & Gamble relating to the
terms of Mr. Kilts post-merger employment agreement
still being negotiated. Representatives of UBS and Goldman Sachs
then returned to the meeting and reviewed with the board certain
financial aspects of the transaction.
On January 26, 2005, Mr. Lafley and other members of
the management of Procter & Gamble met with
Mr. Kilts and other members of the management of Gillette
to discuss a communications strategy. Separately, other
Procter & Gamble and Gillette managers and a
representative from Deloitte & Touche LLP,
Procter & Gambles independent registered public
accounting firm and representatives from KPMG, LLP,
Gillettes independent registered public accounting firm,
engaged in a telephonic due diligence discussion with respect to
Gillette and Procter & Gamble. Later that day,
following Mr. Lafleys receipt of a transcript of
Mr. Buffetts comments on the proposed transaction
which had been recorded earlier in the morning, Mr. Lafley
called Mr. Buffett to confirm that Mr. Buffett
consented to the use of his supporting statements in the
anticipated press release announcing the transaction as well as
during analyst meetings.
On the morning of January 27, 2005, Procter &
Gambles Compensation & Leadership Development
Committee held a meeting to consider Mr. Kilts
proposed employment arrangements. The committee considered the
important role Mr. Kilts was expected to play during
the transition and integration, the consideration he would
receive under his arrangements with Gillette as a result of the
transaction, the terms of Mr. Kilts proposed
post-closing compensation package (including its relationship to
his current compensation arrangements with Gillette), the
non-compete arrangements and consideration therefore and the
history of the preceding discussions. The meeting was attended
by representatives of senior management, Sullivan &
Cromwell LLP and Frederic W. Cook & Co., Inc., the
committees regular compensation advisory firm, each of
whom discussed various aspects of the preceding with the
committee. Following the review and discussion, the committee
approved the post-closing compensation package and the
non-compete arrangements.
Following the committees meeting, the board of directors
of Procter & Gamble held a special meeting to review
and consider the final terms of the proposed merger agreement.
Also present at the meeting were members of Procter &
Gambles senior management, Procter &
Gambles legal advisors, financial advisors and independent
accountants. After an update on the progress of the negotiations
by
I-24
Chapter One The Merger
Mr. Lafley, Procter & Gambles senior
management presented its assessment of the proposed transaction,
including revised synergy estimates, dilution/accretion
calculations, potential stock price impacts and
Mr. Kilts role as a Procter & Gamble
executive. Procter & Gambles board of directors
also considered the alternatives to completing a transaction
with Gillette. Representatives of Merrill Lynch then reviewed
its financial analysis and rendered to the board its oral
opinion, which opinion was subsequently confirmed in writing,
that, as of January 27, 2005 and based upon and subject to
the assumptions, qualifications, and limitations set out in its
written opinion, the exchange ratio in the merger was fair from
a financial point of view to Procter & Gamble. See
Opinions of Financial Advisors Opinion of
Procter & Gambles Financial Advisor on page
for further information
regarding this opinion. Representatives of Cadwalader,
Wickersham & Taft LLP then reviewed the proposed merger
agreement in detail with the members of the board of directors
and discussed the fiduciary duties of the board of directors in
considering the proposed acquisition, and a representative from
Jones Day, Procter & Gambles regulatory counsel,
discussed anti-trust and regulatory implications of the proposed
deal. A representative of Deloitte & Touche LLP then
updated the board of directors concerning the due diligence
discussion with Gillettes accountants. A representative
from Covington & Burling discussed certain legal
matters related to the proposed acquisition. Mr. Augustine
then reported to the board of directors the
Compensation & Leadership Development Committees
deliberations and conclusions concerning Mr. Kilts
post-closing compensation package. During these discussions, the
board of directors asked questions of Procter &
Gambles management, legal counsel and financial advisor.
Following further review and discussion, the members of the
board of directors voted unanimously to approve the merger
agreement and the transactions contemplated thereby and resolved
to recommend that its shareholders vote to adopt the merger
agreement and approve the issuance of shares of
Procter & Gamble common stock in the merger.
Also, on January 27, 2005, the Gillette board of directors
held a special meeting. Management and counsel described the
resolution of the outstanding issues that had been discussed at
the January 25 meeting. Representatives of Goldman Sachs and UBS
reviewed their financial analyses and rendered to the board
their respective oral opinions, which opinions were subsequently
confirmed in writing, that as of January 27, 2005, based
upon and subject to the factors, assumptions, procedures,
limitations and qualifications set forth in such opinions, the
exchange ratio to be received by shareholders of Gillette
pursuant to the merger was fair from a financial point of view
to such holders. See Opinions of Financial
Advisors Opinions of Gillettes Financial
Advisors on
page for further
information regarding these opinions. Thereafter, management and
counsel, after excusing Mr. Kilts from the meeting,
described the terms of Mr. Kilts post-merger employment
agreement and the board engaged in a discussion of the
foregoing. After excusing the management directors, the outside
directors proceeded to discuss the merger agreement and the
transactions contemplated by the merger agreement. After the
management directors returned to the meeting, the board engaged
in further discussions. Throughout these discussions, the board
of directors asked questions of Gillettes management,
legal counsel and financial advisors. Following these
discussions, the board unanimously determined that the merger
agreement and the transactions contemplated by the merger
agreement were fair and in the best interests of Gillettes
shareholders and voted unanimously to approve the merger
agreement and to recommend that Gillettes shareholders
approve and adopt the merger agreement.
Following the board meetings on January 27, 2005, Gillette
and Procter & Gamble signed the merger agreement.
Before the opening of trading on the New York Stock Exchange on
January 28, 2005, Procter & Gamble and Gillette
issued a joint press release announcing the proposed merger.
Reasons for the Merger
While Procter & Gamble and Gillette each has strong
growth potential and prospects for the near and long-term as a
stand-alone entity, both believe that a combination of the two
companies will create a leading global consumer products company
with greater product diversity, geographic breadth,
organizational capabilities and financial resources that will
have the opportunity to grow and enhance consumer value and
shareholder value in ways that are unlikely to be achieved by
Procter & Gamble or Gillette alone. The drivers of
sustained growth and superior shareholder returns are the
combination of more and faster innovation, delivered more
affordably and profitably, brought to market with deeper local
knowledge
I-25
Chapter One The Merger
and stronger retail partnerships, and commercialized more
successfully and consistently. The combined company will be
uniquely positioned to improve on all of these drivers as a
result of the following:
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complementary strengths in innovation, selling and go-to-market
capabilities to improve sales growth; |
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strengthened line-up of industry leading brands; |
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increased scale for better consumer value and lower
costs; and |
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enhanced relationships with retail customers. |
Complementary Strengths in Innovation, Selling and
Go-To-Market Capabilities. Both Procter & Gamble
and Gillette believe that they can grow faster together by
taking advantage of complementary strengths in innovation,
selling and go-to-market capability, and that the proposed
merger will enhance each of these core competencies for the
following reasons:
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Both companies consider innovation as their
lifeblood. Both companies are leaders in investments
in research and development and creation of products which
deliver new benefits, improved performance and quality as well
as superior value to consumers. Procter & Gamble has
increased the pace of innovation with its Connect and
Develop Strategy which links innovation and technologies
across businesses, geographies and disciplines. The merger will
create the opportunity to take this strategy to a higher level
due to Gillettes complementary consumer knowledge and
product technologies, particularly in shaving and hair removal,
as well as their complementary innovation capabilities in the
area of design. The combined company will be a preferred
innovation partner in the consumer products industry because of
its diversity of businesses, technologies and commercialization
capability. |
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The combination of Procter & Gambles existing
distribution infrastructure and Gillettes brands enhances
the opportunity for the combined company to grow faster.
Procter & Gamble can distribute leading brands like
Gillette and Duracell more deeply and more cost-effectively
through Procter & Gambles Market Development
Organization, particularly in developing markets where
Procter & Gamble is about five times the size of
Gillette. In many developing markets Procter & Gamble
has built supply and distribution networks for key categories,
such as detergents and shampoo. The combined company will be
able to draw on this infrastructure to bring Gillette brands to
more stores, which, in turn, will drive more trial usage, more
household penetration, more regular usage and more repeat
purchases. In addition, Procter & Gambles
capabilities will be enhanced in markets such as India and
Brazil where it is under-developed today. With greater scale in
these countries, Procter & Gamble can build the kind of
supply and distribution infrastructure it has built elsewhere,
and thereby innovate more affordably and more profitably. |
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Gillettes expertise in trading consumers up to higher
value added products and its in-store marketing capabilities
will enhance the combined companys ability to increase
value from leading brands as well as new product launches. Many
of Gillettes global brands are leaders in categories with
consistently high growth. Gillettes marketing keeps these
categories growing with leadership innovation, while continually
increasing Gillettes sales and margins. This expertise
fits well with Procter & Gambles focus on
creating similar product lines with broad consumer appeal such
as: Olay, Tide and Pampers. Finally, Gillette brings innovation
with great product launch expertise and in-store execution. As a
result, Gillette people and Gillette brands will help
Procter & Gamble do an even better job of reaching more
consumers, more effectively and more profitably, in more aisles
in more stores around the world. |
Strengthening Procter & Gambles Range of
Brands. The combination of Gillettes products and
Procter & Gambles products will help shift the
combined companys brands toward faster-growing,
higher-margin, more asset-efficient businesses. Gillette has
five billion dollar brands, three of which are leaders in
health, beauty and personal care. The combined company will have
21 billion dollar brands and about 50% of its sales will be
in the health, beauty and personal care categories.
I-26
Chapter One The Merger
Increased Scale. The proposed merger will combine two of
the worlds leading consumer products companies. The
enhanced leadership and scale of the combined company will
provide opportunities to lower costs and to reinvest in branding
and innovation, thereby providing better value to consumers and
at the same time better returns to shareholders. The scale
benefits and anticipated synergies will create opportunities to
reduce non-value added costs. Procter & Gamble has
identified more than $1 billion in synergies by the third
year after closing. The combined company will have access to key
business support functions through Procter &
Gambles Global Business Services (GBS) group.
GBS delivers best-in-class costs that are not available to
Gillette on its own today. There are also synergy opportunities
in purchasing, manufacturing, and logistics. The combined
company will be able to reduce costs in these areas through
increased scale, improved asset utilization, and coordinated
global and regional purchasing. Further, the combined company
will generate efficiencies in marketing and retail selling.
Enhancing Retail Relationships. Procter & Gamble
and Gillette expect that the combined company will have stronger
relationships with retail customers, as a result of synergies
between Procter & Gambles customer business
development organization and Gillettes excellent in-store
execution. Additionally, the combined company will be able to
offer retailers a more diverse mix of brands, a stronger pool of
consumer and shopper knowledge, a broader, deeper expertise in
marketing to both men and women, industry leading product
innovation, industry leading supply chain management, and the
latest in supply chain innovation such as RFID.
Factors Considered by, and Recommendation of, the Board of
Directors of Procter & Gamble
At a special meeting held on January 27, 2005, after due
consideration and consultation with financial and other
advisors, the Procter & Gamble board of directors:
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determined by a unanimous vote of the directors present at the
meeting that the merger agreement and the transactions
contemplated thereby, including the issuance of
Procter & Gamble common stock in the merger, are
advisable, fair to and in the best interests of
Procter & Gamble and its shareholders; |
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approved the merger agreement and the issuance of
Procter & Gamble common stock in the merger; |
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directed that the merger agreement and the issuance of
Procter & Gamble common stock in the merger be
submitted for consideration to the Procter & Gamble
shareholders; and |
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recommended that the Procter & Gamble shareholders
vote FOR the proposal to adopt the merger agreement and
approve the issuance of Procter & Gamble common stock
in the merger. |
In the course of reaching its decision to approve the merger
agreement, Procter & Gambles board of directors
consulted with Procter & Gambles management, as
well as its legal counsel and financial advisors, and considered
the following material factors:
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information concerning the financial performance and condition,
results of operations, asset quality, prospects and businesses
of each of Procter & Gamble and Gillette as separate
entities and on a combined basis, including: |
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the revenues of the companies, their complementary businesses
and the potential for cost savings and revenue
enhancement; and |
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the recent and historical stock price performance of
Procter & Gamble common stock and Gillette common stock. |
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the importance of market position, significant scale and scope
and financial resources to a companys ability to compete
effectively in the global consumer products market; |
I-27
Chapter One The Merger
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the strategic nature of the transaction, which combines
Procter & Gambles and Gillettes
complementary businesses, and creates a broader company with
enhanced global reach and greater resources, enhanced future
operating flexibility and increased opportunity for growth; |
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the potential benefits to be derived from a combination of the
two companies as described under Reasons for the
Merger on page ,
including potential cost savings and efficiencies that could
result from the merger; |
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the agreement of Mr. Kilts to remain employed with the
combined company through a period of integration and to agree to
restrictions on his ability to exercise his options for, or sell
his holdings of, Procter & Gamble stock; |
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the current industry, economic and market conditions and trends; |
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the fact that the customer and consumer bases to be served will
be broader and more diverse; |
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the opportunity for the shareholders of Procter &
Gamble to participate in a larger company with a broader and
more diverse product line and to benefit from future growth of
the combined company; |
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the opinion of Merrill Lynch, which is described below, under
Opinion of Financial Advisors Opinion of
Procter & Gambles Financial Advisor on
page , to the effect that,
as of the date of its opinion and based upon and subject to the
assumptions, qualifications and limitations set out in its
written opinion, the exchange ratio in the merger was fair, from
a financial point of view, to Procter & Gamble; |
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the structure of the transaction as a tax-free reorganization
for United States federal income tax purposes; and |
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the ability to consummate the merger, including the conditions
to the merger requiring receipt of necessary regulatory
approvals in accordance with the terms of the merger agreement. |
In view of the variety of factors and the amount of information
considered, Procter & Gambles board of directors
did not find it practicable to and did not quantify, rank or
otherwise assign relative weights to the specific factors it
considered in reaching its decision. The determination was made
after consideration of all of the factors both negative and
positive, taken as a whole. In addition, individual members of
Procter & Gambles board of directors may have
given different weights to different factors.
Procter & Gambles board of directors considered
all these factors in reaching the conclusions and
recommendations described above. It should be noted that this
explanation of the Procter & Gamble boards
reasoning and certain information presented in this section is
forward-looking in nature and, therefore, such information
should be read in light of the factors discussed under the
heading Forward-Looking Statements on
page .
The Procter & Gamble board of directors has
unanimously approved the merger agreement, the merger, the
issuance of Procter & Gamble common stock in the merger
and the other transactions contemplated thereby and believes
that the terms of the merger are fair to, and in the best
interests of, Procter & Gamble and its shareholders.
Accordingly, the Procter & Gamble board of directors
unanimously recommends that the Procter & Gamble
shareholders vote FOR the proposal to adopt the merger
agreement and approve the issuance of Procter & Gamble
common stock in the merger.
Factors Considered by, and Recommendation of, the Board of
Directors of Gillette
The Gillette board of directors unanimously determined that the
merger agreement and the merger are advisable and fair to and in
the best interests of Gillette and its shareholders. The
Gillette board of directors recommends that Gillettes
shareholders vote FOR adoption of the merger
agreement and approval of the merger.
I-28
Chapter One The Merger
In the course of reaching its decision to approve the merger
agreement and to recommend that Gillettes shareholders
vote to adopt the merger agreement and approve the merger, the
Gillette board of directors considered a number of factors,
including the following material factors:
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Strategic Benefits. The Gillette board of directors
believes that the combination of Gillette with
Procter & Gamble will create the best consumer products
company in the world. The combined company will have combined
annual sales of $62 billion and 21 global brands each with
sales over $1 billion annually. Given the complementary
brands and markets of Gillette and Procter & Gamble,
the Gillette board of directors believes that the combined
company will be well positioned to deliver superior sustainable
growth for its shareholders. The Gillette board of directors
also believes that the combined company will provide greater
opportunities to accelerate brand growth and innovation by
taking advantage of the combined companys resources and
highly developed infrastructure. |
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Similar Culture, Vision and Values. The Gillette board of
directors believes that Gillette and Procter & Gamble
share similar corporate cultures, a vision of becoming the best
consumer products company in the world and a number of important
core values, including dedication to the highest standards of
achievement, focus on innovation quality and cost reduction,
commitment to employees and upgrading capabilities and adherence
to the highest ethical standards. |
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Complementary Brands and Markets. The Gillette board of
directors believes that the expertise and product offerings of
Gillette and Procter & Gamble are highly complementary
and present significant opportunities for leveraging the
combined companys marketing and research and development
capabilities. Gillette and Procter & Gamble both market
their products around the world and have placed a high priority
on growth in developing markets. The merger will enable the
combined company to accelerate execution of Gillettes and
Procter & Gambles shared strategy of increasing
growth in these developing markets. |
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Synergies. The Gillette board of directors believes that,
following the merger, the combined company will be able to use
its combined scale to generate synergies to generate value for
its shareholders. |
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Participation in the Combined Company. The Gillette board
of directors considered that Gillette shareholders in the
aggregate will represent a significant equity percentage of the
earnings and prospects of the combined company and will
accordingly participate in the strategic and other benefits of
the combination. |
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Presentations and Opinion of Financial Advisors. The
Gillette board of directors considered the presentations by and
analyses of UBS and Goldman Sachs, financial advisors to
Gillette, and the opinions of UBS and Goldman Sachs that as of
January 27, 2005, and based upon and subject to the
factors, assumptions, procedures, limitations and qualifications
set forth in such opinions, the exchange ratio pursuant to the
merger agreement was fair, from a financial point of view, to
the holders of Gillettes common stock. |
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Alternatives to the Merger. The Gillette board of
directors considered the possibility, as alternatives to the
merger, of not pursuing any transaction or of pursuing an
acquisition of, or a business combination with, an entity other
than Procter & Gamble. The Gillette board of directors
concluded that a transaction with Procter & Gamble was
more feasible and was expected to yield greater benefits than
these alternatives. |
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Valuation. The Gillette board of directors believes that
the exchange ratio provided for in the merger agreement provides
Gillette shareholders with an attractive valuation for their
interest in Gillette, including a 18% premium over the closing
price of Gillettes common stock on January 27, 2005,
the last trading day prior to the public announcement of the
merger agreement, and a multiple of 18.8 times its EBITDA for
2004. |
I-29
Chapter One The Merger
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Due Diligence Review. The Gillette board of directors
considered the results of the due diligence review conducted by
members of Gillettes senior management relating to
Procter & Gambles businesses and operations,
which were consistent with the expectations of the Gillette
board of directors with respect to the strategic and financial
benefits of the merger. |
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Integration. The Gillette board of directors considered
the fact that James M. Kilts will serve as a vice chairman of
Procter & Gamble for at least one year following
consummation of the merger and will also join the
Procter & Gamble board of directors, which the Gillette
board of directors considered to be of significant importance in
ensuring an effective and timely integration of the two
companies operations. |
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Stock Purchase. The Gillette board of directors
considered Procter & Gambles intent to repurchase
up to $22 billion of Procter & Gamble shares by
June 2006, with the resulting positive effects on the
shareholder value. |
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Financial Strength. The Gillette board of directors
considered that the merger is expected to produce a combined
company with greater financial strength than Gillette had on its
own. |
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Tax-Free Transaction. The Gillette board of directors
considered that the merger is expected to be tax-free for
U.S. federal income tax purposes to Gillettes
shareholders. |
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Other Agreement Terms. The Gillette board of directors
considered the terms and conditions of the merger agreement,
including the conditions to closing, the termination fee payable
under certain circumstances and the restrictions imposed on the
conduct of business of Gillette and Procter & Gamble in
the period prior to closing. |
The Gillette board of directors also considered potential risks
associated with the merger in connection with its deliberations
of the proposed transaction, including:
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Risk Factors. The Gillette board of directors considered
the risk factors described under Risk Factors,
including the challenges and costs inherent in integrating two
businesses, the size of Gillette and Procter & Gamble,
and the management time and effort from both Gillette and
Procter & Gamble executives that will be required to
successfully achieve that integration. |
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Regulatory Approval. The Gillette board of directors
considered the risk that the governmental agencies from which
Gillette and Procter & Gamble will seek approval might
seek to impose conditions on or enjoin or otherwise prevent or
delay the merger. |
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Fixed Exchange Ratio. The Gillette board of directors
considered the risks associated with a fixed exchange ratio,
which by its nature would not adjust upwards to compensate for
declines (or downwards to compensate for increases) in
Procter & Gambles stock price prior to the
completion of the merger, and that the terms of the merger
agreement did not include collar provisions or stock
price-based termination rights that would be triggered by a
decrease in the value of the merger consideration implied by the
Procter & Gamble stock price. |
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Transaction Risk. The Gillette board of directors
considered the risk that the merger would not be consummated,
whether as a result of regulatory actions or otherwise. |
In addition, the Gillette board of directors was aware of the
interests of certain of its directors and executive officers
described under Interests of Certain Persons
in the Merger.
Due to the variety of factors and the quality and amount of
information considered, the Gillette board of directors did not
find it practicable to and did not make specific assessments of,
quantify or assign relative weights to the specific factors
considered in reaching its determination to approve the merger
agreement and the merger. Instead, the Gillette board of
directors made its determination after consideration of all
factors taken together. In addition, individual members of the
Gillette board of directors may have given different weight to
different factors.
I-30
Chapter One The Merger
The Gillette board of directors unanimously determined that
the merger agreement and the merger are advisable and fair to
and in the best interests of Gillette and its shareholders. The
Gillette board of directors recommends that Gillettes
shareholders vote FOR adoption of the merger
agreement and approval of the merger.
Accounting Treatment
The merger will be accounted for as a purchase by
Procter & Gamble under accounting principles generally
accepted in the United States of America. Under the purchase
method of accounting, the assets and liabilities of Gillette
will be recorded, as of completion of the merger, at their
respective fair values and added to those of Procter &
Gamble. Reported financial condition and results of operations
of Procter & Gamble issued after completion of the
merger will reflect Gillettes balances and results after
completion of the merger, but will not be restated retroactively
to reflect the historical financial position or results of
operations of Gillette. Following the completion of the merger,
the earnings of the combined company will reflect purchase
accounting adjustments, including increased depreciation and
amortization expense for acquired tangible and intangible assets.
Material Federal Income Tax Consequences of the Merger
The following general discussion summarizes the material United
States federal income tax consequences of the merger to holders
of Procter & Gamble stock and Gillette common stock.
This discussion addresses only those Procter & Gamble
and Gillette shareholders that hold their Procter &
Gamble stock and Gillette common stock as a capital asset and
does not address all aspects of federal income taxation that may
be relevant to a holder of Procter & Gamble stock or
Gillette common stock in light of that shareholders
particular circumstances or to a shareholder subject to special
rules, such as:
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a shareholder that is not a citizen or resident of the United
States; |
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a financial institution or insurance company; |
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a mutual fund; |
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a tax-exempt organization; |
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a dealer or broker in securities or foreign currencies; |
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a trader in securities that elect to apply a mark-to-market
method of accounting; |
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a shareholder that holds its Procter & Gamble stock or
Gillette common stock as part of a hedge, appreciated financial
position, straddle, conversion, or other risk reduction
transaction; or |
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a shareholder that acquired its Procter & Gamble stock
or Gillette common stock pursuant to the exercise of options or
similar derivative securities or otherwise as compensation. |
If a partnership holds Procter & Gamble stock or
Gillette common stock, the tax treatment of a partner in such
partnership will generally depend on the status of the partners
and the activities of the partnership. A partner in a
partnership holding Procter & Gamble stock or Gillette
common stock should consult its tax advisor.
The following discussion is not binding on the Internal Revenue
Service. It is based on the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, administrative
interpretations and court decisions, each as in effect as of the
date of this joint proxy statement/ prospectus and all of which
are subject to change, possibly with retroactive effect. The tax
consequences under United States state and local and foreign
laws and United States federal laws other than United States
federal income tax laws are not addressed.
I-31
Chapter One The Merger
Holders of Procter & Gamble stock and Gillette common
stock are strongly urged to consult their tax advisors as to the
specific tax consequences to them of the merger, including the
applicability and effect of United States federal, state and
local and foreign income and other tax laws in light of their
particular circumstances.
General. Procter & Gamble and Gillette have
structured the merger so that it is anticipated that the merger
will qualify as a reorganization for United States federal
income tax purposes. On the date this registration statement
becomes effective, Procter & Gamble will receive a
written opinion from Cadwalader, Wickersham & Taft LLP,
and Gillette will receive a written opinion from Davis
Polk & Wardwell, both to the effect that for United
States federal income tax purposes, the merger will constitute a
reorganization within the meaning of section 368(a) of the
Internal Revenue Code and the following discussion assumes that
the merger will so qualify. It is a condition to the completion
of the merger that Cadwalader, Wickersham & Taft LLP
and Davis Polk & Wardwell confirm their respective
opinions as of the closing date of the merger. Neither
Procter & Gamble nor Gillette intends to waive this
condition. These opinions each rely on assumptions, including
assumptions regarding the absence of changes in existing facts
and law and the completion of the merger in the manner
contemplated by the merger agreement, and representations and
covenants made by Procter & Gamble, Gillette and
others, including those contained in certificates of officers of
Procter & Gamble and Gillette. The accuracy of those
representations, covenants or assumptions may affect the
conclusions set forth in these opinions, in which case the tax
consequences of the merger could differ from those discussed
here. Opinions of counsel neither bind the IRS nor preclude the
IRS from adopting a contrary position. No ruling has been or
will be sought from the IRS on the tax consequences of the
merger.
United States Federal Income Tax Consequences to Gillette
Shareholders Who Participate in the Merger. For United
States federal income tax purposes:
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A holder of Gillette common stock will not recognize any gain or
loss upon the exchange of that shareholders shares of
Gillette common stock for shares of Procter & Gamble
common stock in the merger, except that gain or loss will be
recognized on the receipt of cash instead of a fractional share
of Procter & Gamble common stock; |
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To the extent that a holder of Gillette common stock receives
cash instead of a fractional share of Procter & Gamble
common stock, the holder will be required to recognize gain or
loss, measured by the difference between the amount of cash
received and the portion of the tax basis of that holders
shares of Gillette common stock allocable to that fractional
share of Procter & Gamble common stock. This gain or
loss will be capital gain or loss and will be long-term capital
gain or loss if the holding period for the share of Gillette
common stock exchanged for the fractional share of
Procter & Gamble common stock is more than one year at
the completion of the merger; |
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A holder of Gillette common stock will have a tax basis in the
Procter & Gamble common stock received in the merger
equal to (1) the tax basis of the Gillette common stock
surrendered by that holder in the merger, less (2) any tax
basis of the Gillette common stock surrendered that is allocable
to a fractional share of Procter & Gamble common stock
for which cash is received; and |
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The holding period for shares of Procter & Gamble
common stock received in exchange for shares of Gillette common
stock in the merger will include the holding period for the
shares of Gillette common stock surrendered in the merger. |
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In the case of a holder of Gillette common stock who holds
shares of Gillette common stock with differing tax bases and/or
holding periods, the preceding rules must be applied to each
identifiable block of Gillette common stock. |
United States Federal Income Tax Consequences to
Procter & Gamble Shareholders. There will be no
United States federal income tax consequences to a holder of
Procter & Gamble stock as a result of the merger, other
than the United States federal income tax consequences to a
holder of Procter & Gamble stock that exercises
dissenters rights in connection with the merger.
I-32
Chapter One The Merger
For United States federal income tax purposes any holder of
Procter & Gamble stock that exercises dissenters
rights in connection with the merger will generally be required
to recognize gain or loss upon the exchange of that
shareholders shares of Procter & Gamble stock for
cash, measured by the difference between the amount of cash
received and the tax basis of that holders shares of
Procter & Gamble stock. This gain or loss will
generally be capital gain or loss and will be long-term capital
gain or loss if the holding period for the share of
Procter & Gamble stock is more than one year at the
date of the exchange.
This discussion is intended to provide only a general summary of
the material United States federal income tax consequences of
the merger, and is not a complete analysis or description of all
potential United States federal income tax consequences of the
merger. This discussion does not address tax consequences that
may vary with, or are contingent on, individual circumstances.
In addition, it does not address any non-income tax or any
foreign, state or local tax consequences of the merger.
Accordingly, Procter & Gamble and Gillette strongly
urge each holder of Procter & Gamble stock and Gillette
common stock to consult his or her tax advisor to determine the
particular United States federal, state or local or foreign
income or other tax consequences to that shareholder of the
merger.
Regulatory Matters Relating to the Merger
United States Antitrust. Under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and its
associated rules, the merger may not be completed until
notifications have been given and certain information and
materials have been furnished to and reviewed by the Antitrust
Division of the United States Department of Justice or the
Federal Trade Commission and the required waiting period has
expired or terminated. Procter & Gamble and Gillette
filed the required notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, with the Federal Trade Commission and the Department of
Justice. There can be no assurance that a challenge to the
merger on antitrust grounds will not be made or, if a challenge
is made, that it would not be successful. In addition, state
antitrust authorities and private parties in certain
circumstances may bring legal action under the antitrust laws
seeking to enjoin the merger or seeking conditions to the
completion of the merger.
European Union. Both Procter & Gamble and
Gillette conduct business in member states of the European
Union. Council Regulation No. 139/2004 and
accompanying regulations require notification to and approval by
the European Commission of specific mergers or acquisitions
involving parties with worldwide sales and individual European
Union sales exceeding specified thresholds before these mergers
and acquisitions can be implemented. Procter & Gamble
and Gillette intend to seek approval of the European Commission
for the merger shortly.
Expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and gaining approval under Council
Regulation No. 139/2004 are conditions to completing
the merger.
Other Jurisdictions. Procter & Gamble and
Gillette each conduct operations in a number of jurisdictions
where other regulatory approvals are required or advisable in
connection with the completion of the merger. The companies
recognize that some of these approvals, which are not required
to be obtained under the merger agreement, may not be obtained
prior to the completion of the merger and may impact the
combined companys ability to conduct business in those
jurisdictions. However, Procter & Gamble is not
required to complete the merger if the companies have failed to
obtain any governmental approval and such failure would
reasonably be expected, individually or in the aggregate, to
have a material adverse effect on the combined company following
the merger.
Dissenters Rights
Shareholders of a corporation that is proposing to merge or
consolidate with another entity are sometimes entitled under
relevant state laws to appraisal or dissenters rights in
connection with the proposed transaction depending on the
circumstances.
I-33
Chapter One The Merger
Under Delaware law, Gillette common shareholders are not
entitled to appraisal rights in connection with the merger
because on the Gillette record date Gillette common stock will
be designated and quoted for trading on the New York Stock
Exchange and will be converted into the right to receive
Procter & Gamble common stock, which at the effective
time of the merger will be listed on the New York Stock Exchange.
Under Ohio law, Procter & Gamble common shareholders
are entitled to dissenters rights in connection with the
merger. However, Procter & Gamble shareholders are
entitled to relief as a dissenting shareholder under Ohio
Revised Code Section 1701.85 only if they strictly comply
with all of the procedural and other requirements of
Section 1701.85, a copy of which has been attached as
Annex E to this document. The following is a description of
the material terms of Section 1701.85.
A Procter & Gamble shareholder who wishes to perfect
his rights as a dissenting shareholder in the event the merger
agreement is adopted:
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must be a record holder of the shares of Procter &
Gamble common stock, Series A ESOP Preferred Stock, or
Series B ESOP Preferred Stock as to which he or she seeks
relief on the record date as of the date fixed for the
determination of shareholders entitled to notice of the
Procter & Gamble special meeting; |
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must not vote his or her shares of Procter & Gamble
common stock, Series A ESOP Preferred Stock, or
Series B ESOP Preferred Stock in favor of adoption of the
merger agreement and the issuance of Procter & Gamble
common stock in the merger; and |
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must deliver to Procter & Gamble, not later than ten
days after the Procter & Gamble special meeting, a
written demand for payment of the fair cash value of the shares
as to which he or she seeks relief. The written demand must
state the name of the shareholder, his or her address, the
number and class of shares as to which he or she seeks relief
and the amount claimed as the fair value for those shares. |
Voting against the approval of the merger agreement will not
satisfy the requirements of a written demand for payment. Any
written demand for payment should be mailed or delivered to The
Procter & Gamble Company, P.O. Box 5572,
Cincinnati, OH 45201-5572. Because the written demand must be
delivered to Procter & Gamble within the ten-day period
following the Procter & Gamble special meeting,
Procter & Gamble recommends that a dissenting
shareholder use certified or registered mail, return receipt
requested, to confirm that he or she has made timely delivery.
Procter & Gamble is required under the merger agreement
to send the dissenting shareholder, at the address specified in
his or her demand, a request for the certificate(s) representing
his or her shares. The dissenting shareholder must deliver the
certificate(s) to Procter & Gamble within 15 days
of the date Procter & Gamble sent the request.
Procter & Gamble will endorse the certificate(s) with a
legend to the effect that the shareholder has demanded the fair
cash value of the shares represented by the certificate(s).
Procter & Gamble will then return such shares to the
dissenting shareholder. If the shareholder fails to deliver the
certificate(s) within 15 days of the request,
Procter & Gamble will terminate his or her right to
dissent. Procter & Gamble must notify the shareholder
within 20 days after the lapse of the 15-day period.
If the dissenting shareholder and Procter & Gamble
cannot agree on the fair cash value per share of the shares of
Procter & Gamble common stock, either may, within three
months after the service of the written demand by the
shareholder, file a petition in the Court of Common Pleas of
Hamilton County, Ohio for a determination of the fair cash value
of the dissenting shares. If the court finds that the
shareholder is entitled to be paid the fair cash value of any
shares, the court may appoint one or more appraisers to receive
evidence and to recommend a decision on the amount of the fair
cash value.
The fair cash value of a share of Procter & Gamble
common stock to which a dissenting shareholder is entitled under
Section 1701.85 will be determined as of the day prior to
the Procter & Gamble special
I-34
Chapter One The Merger
meeting. Fair cash value will be computed as the amount a
willing seller and willing buyer would accept or pay if neither
was compelled to sell or buy, excluding any appreciation or
depreciation in market value resulting from the merger.
Notwithstanding the foregoing, the fair cash value may not
exceed the amount specified in the shareholders written
demand. The court will make a finding as to the fair cash value
of a share and render judgment against Procter & Gamble
for its payment with interest at such rate and from such date as
the court considers equitable. The court will assess or
apportion the costs of the proceedings as it considers equitable.
The rights of any dissenting shareholder will terminate if:
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the dissenting shareholder has not complied with
Section 1701.85, unless Procter & Gamble, by its
board of directors, waives this failure (however, Procter and
Gamble agreed pursuant to the terms of the merger agreement not
to waive, without Gillettes consent, any failure of a
dissenting shareholder to comply with Section 1701.85); |
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Procter & Gamble abandons or is finally enjoined or
prevented from carrying out, or the shareholders of
Procter & Gamble rescind their approval of, the merger
agreement; |
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the dissenting shareholder withdraws his or her written demand
with the consent of Procter & Gamble, by its board of
directors; or |
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Procter & Gamble and the dissenting shareholder have
not agreed upon the fair cash value per share of the
Procter & Gamble common stock and neither has timely
filed or joined in a petition in an appropriate court for a
determination of the fair cash value of the shares. |
When a dissenting shareholder exercises his or her rights under
Section 1701.85, all other rights with respect to such
Procter & Gamble common stock will be suspended until
Procter & Gamble purchases the shares, or the right to
receive fair cash value is otherwise terminated. If during the
suspension, any cash dividend is paid on shares of
Procter & Gamble common stock, an amount equal to such
dividend which, except for the suspension, would have been
payable upon such shares of Procter & Gamble common
stock will be paid to the holder of record as a credit upon the
fair cash value of the shares. Such rights will be reinstated
should the right to receive fair cash value be terminated other
than by the purchase of the shares by Procter & Gamble,
and all distributions which, except for the suspension, would
have been made will be made to the holder of record of the
shares at the time of termination.
Because a proxy card which does not contain voting instructions
regarding the proposal to adopt the merger agreement and approve
the issuance of Procter & Gamble common stock in the
merger will be voted for the adoption of the merger agreement
and the approval of the issuance of Procter & Gamble
common stock in the merger, a Procter & Gamble
shareholder who wishes to exercise dissenters rights must
either: (1) not sign and return the proxy card or otherwise
vote at the Procter & Gamble special meeting, or
(2) vote against or abstain from voting on the adoption of
the merger agreement and the approval of the issuance of
Procter & Gamble common stock in the merger.
Federal Securities Laws Consequences; Stock Transfer
Restriction Agreements
This registration statement of which this joint proxy statement/
prospectus is a part does not cover any resales of the
Procter & Gamble common stock to be received by the
shareholders of Gillette upon completion of the merger, and no
person is authorized to make any use of this joint proxy
statement/ prospectus in connection with any such resale.
All shares of Procter & Gamble common stock received by
Gillette shareholders in the merger will be freely transferable,
except that shares of Procter & Gamble common stock
received by persons who are deemed to be affiliates
of Gillette under the Securities Act of 1933, as amended (the
Securities Act), at the time of the Gillette special
meeting may be resold by them only in transactions permitted by
Rule 145 under the Securities Act or as otherwise permitted
under the Securities Act. Persons who may be deemed to be
affiliates of Gillette for such purposes generally include
individuals or entities that
I-35
Chapter One The Merger
control, are controlled by or are under common control with,
Gillette, as the case may be, and include directors and certain
executive officers of Gillette. The merger agreement requires
that Gillette use commercially reasonable efforts to cause each
affiliate to execute a written agreement to the effect that such
persons will not offer, sell or otherwise dispose of any of the
shares of Procter & Gamble common stock issued to them
in the merger in violation of the Securities Act or the related
SEC rules and regulations promulgated thereunder.
Repurchase of Common Stock
Subject to applicable law, Procter & Gamble may, from
time to time as price and conditions warrant, repurchase shares
of Procter & Gamble common stock and Gillette may, from
time to time as price and conditions warrant, repurchase shares
of Gillette common stock.
On January 28, 2005, at the time the proposed merger was
announced, Procter & Gamble announced a common stock
repurchase program pursuant to which it and/or one or more of
its subsidiaries plan to repurchase up to $18 billion to
$22 billion of its common stock over a period of
12-18 months.
Regulation M under the federal securities laws prohibits
Procter & Gamble from bidding for or repurchasing its
common stock during the period commencing with the mailing of
this joint proxy statement/ prospectus through the date of
Gillettes special meeting. Accordingly, from the date of
the mailing of this joint proxy statement/ prospectus through
the date of Gillettes special meeting, Procter &
Gamble will suspend its repurchase program. Procter &
Gamble anticipates recommencing its repurchase program following
the date of Gillettes special meeting.
Stock Exchange Listing; Delisting and Deregistration of
Gillette Common Stock
It is a condition to the merger that the shares of
Procter & Gamble common stock issuable in the merger be
approved for listing on the New York Stock Exchange, subject to
official notice of issuance. If the merger is completed,
Gillette common stock will cease to be listed on the New York
Stock Exchange and its shares will be deregistered under the
Securities and Exchange Act of 1934, as amended (the
Exchange Act).
Recent Developments
On February 10, 2005, a putative class action was filed in
Delaware state court on behalf of Gillettes shareholders,
alleging breaches of fiduciary duties by the Gillette board of
directors and senior management in connection with the proposed
merger. The complaint alleges, among other things, that the
proposed merger is unduly favorable to
Procter & Gamble and that, if consummated,
Gillettes senior managers will receive excessive
compensation. The plaintiff seeks injunctive relief barring
consummation of the proposed merger or, in the alternative,
rescission following consummation. The plaintiff also seeks
compensatory damages.
A second action was filed on February 11, 2005, and a third
action was filed on February 28, 2005, both in Delaware
state court. These actions are virtually identical to the action
filed on February 10, 2005. A motion to consolidate the
three actions is pending. It is possible that other, similar
actions will be filed.
Gillette and the other named defendants believe the allegations
are without merit and intend to vigorously defend the actions.
In connection with the announcement of the merger agreement,
Gillette has received various inquiries from the Securities
Division of the Massachusetts Secretary of the Commonwealth, and
is providing information in response to those requests.
I-36
Chapter One The Merger
THE COMPANIES
Procter & Gamble
The Procter & Gamble Company was incorporated in Ohio
in 1905, having been built from a business founded in 1837 by
William Procter and James Gamble. Today, Procter &
Gamble manufactures and markets a broad range of consumer
products. Procter & Gamble has operations in over 80
countries and markets in over 160 countries. Procter &
Gambles principal executive offices are located at One
Procter & Gamble Plaza, Cincinnati, Ohio 45202, and its
telephone number is (513) 983-1100.
Procter & Gambles business is organized into
three product-based, business segments called Global Business
Units. These units are: Household Care; Health, Baby and Family
Care; and Beauty Care.
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Household Care includes the Fabric Care, Home Care, Snacks,
Coffee and commercial services businesses. Fabric Care includes
laundry detergents and fabric enhancers. Home Care includes dish
care, surface care and air care. |
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Health, Baby and Family Care includes the Health Care, Baby Care
and Family Care businesses. Health Care includes oral care,
personal health care, pharmaceuticals and pet health and
nutrition. Baby Care includes diapers and baby wipes. Family
Care includes bath tissue and kitchen towels. |
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Beauty Care includes retail and professional hair care, skin
care, feminine care, cosmetics, fine fragrances and personal
cleansing. |
In the most recent fiscal year ended June 30, 2004, Beauty
Care accounted for 33% of total net sales (excluding net sales
and net earnings in corporate) and the Household Care segment
accounted for 33% of total sales. Health, Baby and Family Care
accounted for 34%.
Gillette
Gillette is a Delaware corporation founded in 1901. As of
December 31, 2004, Gillette had manufacturing operations at
31 facilities in 14 countries and its products are sold in over
200 countries and territories. Gillettes principal
executive offices are located at the Prudential Tower Building,
Boston, Massachusetts 02199, and its telephone number is
(617) 421-7000.
Gillette manufactures and sells a wide variety of consumer
products throughout the world. Gillette has five business
segments: Blades and Razors, Duracell, Oral Care, Braun and
Personal Care.
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Blades and Razors Gillette is the world
leader in blades and razors. Gillette sells male shaving systems
under such brands as M3Power, Mach3Turbo, Mach3, Sensor3,
SensorExcel, Sensor, Atra, and Trac II, and disposable
razors under the Sensor3, Custom Plus, and Good News brands. In
February 2005, Gillette introduced the M3Power Nitro shaving
system for men, which is scheduled to be available to consumers
in North America in the spring 2005. Gillettes female
shaving systems are sold under the Gillette for Women Venus and
Venus Devine, SensorExcel for Women, and Sensor for Women
brands, and its disposable razors are sold under the Agility and
Daisy brands. In December 2004, Gillette introduced the
Venus Vibrance shaving system for women and Venus disposable
razors, both of which are scheduled to be available to consumers
in North America in the spring 2005. Gillette also introduced
Venus Divine disposable razors in December 2004, scheduled to be
available to consumers in select European markets in the spring
2005. |
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Duracell Gillette is the world leader in
alkaline batteries for consumers. Its products include Duracell
CopperTop and Duracell Ultra alkaline batteries and Duracell
primary lithium, zinc air, and rechargeable nickel-metal hydride
batteries. |
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Oral Care Gillette is the world leader in
manual and power toothbrushes. In the second quarter of 2004,
Gillette acquired the Rembrandt brand at-home and professional
teeth-whitening products and Zooth, Inc., a leader in licensed
manual and power toothbrushes for children. In February |
I-37
Chapter One The Merger
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2005, Gillette introduced Oral-B Pulsar, a pulsating adult
manual toothbrush, which is scheduled to be available to
consumers in North America in July 2005. |
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Braun Gillette sells electric shavers under
the Braun brand and hair epilators under the Braun Silk-Epil
brand. These products include the number one foil electric
shaver for men and the number one hair epilator for women.
Gillette also sells small household and personal diagnostic
appliances under the Braun brand. |
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Personal Care Gillette sells shaving
preparations, skin care products, and antiperspirants/deodorants
under brands such as Gillette Complete Skincare, Gillette
Series, Foamy, Satin Care, Right Guard, Soft & Dri, and
Dry Idea. |
I-38
Chapter One The Merger
OPINIONS OF FINANCIAL ADVISORS
Procter & Gamble and Gillette each retained its own
financial advisor or advisors to assist them and their
respective boards of directors in the consideration of
valuation, financial and other matters relating to the merger.
Procter & Gamble retained Merrill Lynch as its
financial advisor and Gillette retained Goldman Sachs and UBS as
its financial advisors.
Opinion of Procter & Gambles Financial
Advisor
Procter & Gamble retained Merrill Lynch to act as its
exclusive financial advisor in connection with the proposed
merger. On January 27, 2005, Merrill Lynch delivered to the
Procter & Gamble board of directors an oral opinion,
which was confirmed by delivery of a written opinion dated the
same date, to the effect that, as of that date, and based upon
and subject to the factors and assumptions set forth in the
opinion, the exchange ratio of 0.975 provided for in the merger
was fair, from a financial point of view, to Procter &
Gamble. Merrill Lynch does not have any obligation to update,
revise or reaffirm its opinion.
The full text of Merrill Lynchs opinion, dated
January 27, 2005, which sets forth the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken by Merrill Lynch, is attached as Annex B
to this joint proxy statement/ prospectus and is incorporated
into this joint proxy statement/ prospectus by reference. The
summary of Merrill Lynchs opinion set forth below is
qualified in its entirety by reference to the full text of the
opinion. Procter & Gamble shareholders are urged to
read the opinion carefully in its entirety. Merrill Lynchs
opinion was delivered to the Procter & Gamble board of
directors for its information and is directed only to the
fairness, from a financial point of view, of the exchange ratio
to Procter & Gamble, and does not address the fairness
to, or any other consideration of, the holders of any class of
securities, creditors or other constituencies of
Procter & Gamble, or any other aspect of the merger,
including the merits of the underlying decision by
Procter & Gamble to engage in the merger. Merrill
Lynchs opinion does not constitute a recommendation to any
Procter & Gamble shareholder as to how the shareholder
should vote with respect to the proposed merger or any other
matter.
In preparing its opinion to the Procter & Gamble board
of directors, Merrill Lynch performed various financial and
comparative analyses, including those described below. The
summary set forth below does not purport to be a complete
description of the analyses underlying Merrill Lynchs
opinion or the presentation made by Merrill Lynch to the
Procter & Gamble board of directors. The preparation of
a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those
methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to partial analysis
or summary description. In arriving at its opinion, Merrill
Lynch did not attribute any particular weight to any analysis or
factor considered by it, but rather made its determination as to
fairness on the basis of its experience and professional
judgment after considering the results of all of its analyses.
Accordingly, Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its
analyses and factors, or focusing on information presented in
tabular format, without considering all of the analyses and
factors or the narrative description of the analyses, would
create a misleading or incomplete view of the process underlying
its opinion.
In performing its analyses, Merrill Lynch made numerous
assumptions with respect to industry performance, general
business, economic, market and financial conditions and other
matters, many of which are beyond the control of Merrill Lynch,
Procter & Gamble or Gillette. Any estimates contained
in the analyses performed by Merrill Lynch are not necessarily
indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by
such analyses. Additionally, estimates of the value of
businesses or securities do not purport to be appraisals or to
reflect the prices at which such businesses or securities might
actually be sold. Accordingly, these analyses and estimates are
inherently subject to substantial uncertainty. In addition, as
described above, Merrill Lynchs opinion was among several
factors taken into consideration by the Procter &
Gamble board of directors in making its
I-39
Chapter One The Merger
determination to approve the merger agreement and the issuance
of shares of Procter & Gamble common stock in the
merger. Consequently, Merrill Lynchs analyses should not
be viewed as determinative of the decision of the
Procter & Gamble board of directors or
Procter & Gamble management with respect to the
fairness of the exchange ratio provided for in the merger
agreement.
In arriving at its opinion, Merrill Lynch, among other things,
did the following:
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reviewed certain publicly available business and financial
information relating to Procter & Gamble and Gillette
that Merrill Lynch deemed to be relevant; |
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reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of Procter & Gamble and
Gillette, including financial forecasts relating to Gillette
prepared by the management of Gillette and Procter &
Gamble, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the
merger (the Expected Synergies) furnished to Merrill
Lynch by Procter & Gamble; |
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conducted discussions with members of senior management and
representatives of Procter & Gamble and Gillette
concerning the matters described in the first two bullets above,
as well as their respective businesses and prospects before and
after giving effect to the merger and the Expected Synergies; |
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reviewed the market prices and valuation multiples for
Procter & Gamble common stock and Gillette common stock
and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant; |
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reviewed the results of operations of Procter & Gamble
and Gillette and compared them with those of certain publicly
traded companies that Merrill Lynch deemed to be relevant; |
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compared the proposed financial terms of the merger with the
financial terms of other transactions that Merrill Lynch deemed
to be relevant; |
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participated in certain discussions and negotiations among
representatives of Procter & Gamble and Gillette and
their financial and legal advisors; |
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reviewed the relative contributions of Procter & Gamble
and Gillette to selected operational metrics of the combined
company based on financial forecasts and estimates prepared by
the management of Procter & Gamble; |
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reviewed the potential pro forma impact of the merger, including
the effects of Procter & Gambles share repurchase
plans; |
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reviewed a draft of the merger agreement dated January 26,
2005; and |
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reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynchs assessment of general economic,
market and monetary conditions. |
In preparing its opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all of the information supplied
or otherwise made available to Merrill Lynch, discussed with or
reviewed by or for Merrill Lynch, or publicly available. Merrill
Lynch did not assume any responsibility for independently
verifying this information and did not undertake an independent
evaluation or appraisal of any of the assets or liabilities of
Procter & Gamble or Gillette, nor was it furnished with
any evaluations or appraisals. Merrill Lynch did not evaluate
the solvency or fair value of Procter & Gamble or
Gillette under any state or federal laws relating to bankruptcy,
insolvency or similar matters. In addition, Merrill Lynch did
not assume any obligation to conduct any physical inspection of
the properties or facilities of Procter & Gamble or
Gillette. With respect to the financial forecast information
relating to Procter & Gamble and Gillette and the
Expected Synergies prepared by the management of
Procter & Gamble and Gillette and furnished to or
discussed with Merrill Lynch by Procter & Gamble or
Gillette, Merrill Lynch assumed
I-40
Chapter One The Merger
that they were reasonably prepared and reflected the best
currently available estimates and judgments of
Procter & Gambles or Gillettes management
as to the expected future financial performance of
Procter & Gamble or Gillette, as the case may be, and
the Expected Synergies. Merrill Lynch further assumed that the
merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes and that the final form of
the merger agreement will be substantially similar to the last
draft reviewed by it.
Merrill Lynchs opinion is necessarily based upon market,
economic and other conditions as they existed on, and on the
information made available to Merrill Lynch as of,
January 27, 2005. Merrill Lynch assumed that in the course
of obtaining the necessary regulatory or other consents or
approvals (contractual or otherwise) for the merger, no
restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the
merger. Merrill Lynch did not express any opinion as to the
prices at which Procter & Gamble common stock or
Gillette common stock will trade following the announcement of
the merger or the price at which Procter & Gamble
common stock will trade following the completion of the merger.
Although Merrill Lynch evaluated the fairness, from a financial
point of view, of the exchange ratio, Merrill Lynch was not
requested to, and did not, recommend the specific consideration
payable in the merger, which consideration was determined
through negotiations between Procter & Gamble and
Gillette and approved by the Procter & Gamble board of
directors. No other limitation was imposed on Merrill Lynch with
respect to the investigations made or procedures followed by
Merrill Lynch in rendering its opinion.
Financial Analysis. The following is a summary of the
material analyses performed by Merrill Lynch in connection with
its opinion to the Procter & Gamble board of directors
dated January 27, 2005. Some of the financial analyses
summarized below include information presented in tabular
format. In order to understand fully Merrill Lynchs
financial analyses, the tables must be read together with the
text of the summary. The tables alone do not constitute a
complete description of the financial analyses. Considering the
data set forth below without considering the full narrative
description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Merrill Lynchs
financial analyses.
Sum-of-the-Parts Selected Comparable Acquisitions
Analysis. Using publicly available information, Merrill
Lynch analyzed, among other things, the purchase prices and
implied transaction multiples paid in the following selected
comparable transactions involving target companies in each of
four segments in which Gillette operates:
Blades and Razors
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Target |
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Acquirer |
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Dreyers Grand Ice-Cream Inc.
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Nestlé SA |
Gatorade (implied in The Quaker Oats Company)
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PepsiCo Inc. |
Neutrogena Corporation
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Johnson & Johnson |
Nivea (implied in Beiersdorf AG)
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Tchibo Holding AG |
Duracell
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Target |
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Acquirer |
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Duracell
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Gillette |
Rayovac Corporation
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T.H. Lee Partners L.P. |
I-41
Chapter One The Merger
Oral & Personal Care
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Target |
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Acquirer |
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Helene Curtis Industries, Inc.
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Unilever NV |
Clairol
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Procter & Gamble |
Maybelline, Inc.
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LOreal USA Inc. |
Wella AG
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Procter & Gamble |
Tambrands, Inc.
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Procter & Gamble |
Kolynos Corporation
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Colgate-Palmolive Company |
The Dial Corporation
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Henkel Group |
Braun
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Target |
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Acquirer |
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Remington Products Company LLC
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Rayovac Corporation |
Merrill Lynch reviewed transaction values of the selected
transactions as multiples of last twelve month trailing earnings
before interest, taxes, depreciation and amortization, commonly
referred to as EBITDA, for the target companies, deriving a
range of selected multiples from these transactions, as follows:
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Business Segment |
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Multiple Range |
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Blades and Razors
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19.0x 24.0x |
Duracell
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9.0x 12.0x |
Oral Care
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13.0x 15.0x |
Personal Care
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13.0x 15.0x |
Braun
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8.0x 10.0x |
Merrill Lynch then applied the range of selected multiples
derived from these transactions to calendar year 2004 estimated
EBITDA of each of Gillettes segments (except for Oral
Care, for which 2005 estimated EBITDA was used in order to
reflect the pro forma impact of Gillettes acquisition of
Zooth, Inc. and Rembrandt) in order to derive an implied per
share equity value reference range for Gillette as a whole. All
multiples for the selected transactions were based on financial
information available at the time of the announcement of the
relevant transaction. Estimated financial data for Gillette were
based on Procter & Gamble managements estimates.
This analysis indicated an implied per share equity value
reference range for Gillette of approximately $47.00 to $58.00,
as compared to the per share equity value for Gillette implied
in the merger of $54.05 based on the exchange ratio of 0.975
provided for in the merger and the closing price of
Procter & Gamble common stock on January 26, 2005.
No transaction used in the Sum-of-the-Parts Selected Comparable
Acquisitions Analysis is identical to the proposed merger.
Accordingly, an analysis of the results of the Sum-of-the-Parts
Selected Comparable Acquisitions Analysis involves complex
considerations of the companies involved and the transactions
and other factors that could affect the acquisition value of the
companies and Gillette.
Discounted Cash Flow Analysis. Merrill Lynch estimated
the present value of the stand-alone, unlevered, after-tax free
cash flows that each of Gillettes business segments could
produce over the Gillette fiscal years 2005 through 2014 both
before and after taking into account the Expected Synergies.
Estimated financial data for each of Gillettes business
segments and the Expected Synergies were based on
Procter & Gamble managements estimates.
I-42
Chapter One The Merger
Ranges of terminal values were derived by applying a range of
perpetuity growth rates to fiscal year 2014 estimated EBITDA for
each Gillette business segment and the Expected Synergies as
follows:
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Perpetuity Growth | |
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Rate Range | |
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Blades & Razors
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2.8% 3.8% |
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Personal Care
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1.5% 2.5% |
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Duracell
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(0.1%) 0.9% |
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Oral Care
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2.4% 3.4% |
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Braun
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0.5% 1.5% |
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Fixed Cost Savings
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2.5% |
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Variable Cost Savings
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3.0% |
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Revenue Synergies
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3.0% 4.0% |
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The free cash flows and terminal values were then discounted to
present value using discount rates within a range of 7.5% to
9.5% in order to derive implied per share equity value reference
ranges for Gillette as a whole. This analysis indicated an
implied per share equity value reference range for Gillette as a
whole as follows:
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Equity Value | |
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Per Share | |
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Standalone
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$40.75 $56.00 |
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Standalone plus Expected Synergies resulting from cost savings
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$50.25 $65.50 |
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Standalone plus total Expected Synergies
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$55.75 $70.75 |
|
Each implied equity value per share is as compared to the per
share equity value for Gillette implied in the merger of $54.05
based on the exchange ratio of 0.975 provided for in the merger
and the closing price of Procter & Gamble common stock
on January 26, 2005.
Relative Contribution Analysis. Using estimated financial
data for Procter & Gamble and Gillette provided by
Procter & Gamble management, Merrill Lynch analyzed the
relative contributions of each of Procter & Gamble and
Gillette to the combined companys net income and levered
free cash flow for fiscal years 2005 through 2007. Merrill Lynch
then computed exchange ratios implied by the ownership
percentages of Procter & Gambles and
Gillettes stockholders in the combined company implied by
Procter & Gambles and Gillettes relative
contributions for each operational metric observed, both before
and after taking into account the Expected Synergies. This
analysis indicated implied exchange ratio reference ranges
before taking into account the Expected Synergies of
approximately 0.654 to 0.681 based on net income contribution
and 0.848 to 0.875 based on levered free cash flow contribution,
as compared to the exchange ratio of 0.975 provided for in the
merger. Attributing to Gillette 50% of the Expected Synergies,
this analysis indicated implied exchange ratio reference ranges
of approximately 0.876 to 0.886 based on net income contribution
and 1.108 to 1.152 based on levered free cash flow contribution,
as compared to the exchange ratio of 0.975 provided for in the
merger. Attributing to Gillette 2/3 of the Expected Synergies,
this analysis indicated implied exchange ratio reference ranges
of approximately 0.941 to 0.963 based on net income contribution
and 1.190 to 1.252 based on levered free cash flow contribution,
as compared to the exchange ratio of 0.975 provided for in the
merger.
Utilizing the high and the low standalone equity value per share
derived pursuant to the discounted cash flow analysis, both
before and after taking into account the Expected Synergies, as
described above, Merrill Lynch computed the implied range of
exchange ratios. This analysis indicated an implied exchange
ratio reference range of 0.597 to 1.165 before taking into
account the Expected Synergies, as compared to the exchange
ratio of 0.975 provided for in the merger. Attributing 50% of
the Expected Synergies, this analysis indicated an implied
exchange ratio reference range of approximately 0.713 to 1.326,
as compared to the exchange ratio of 0.975 provided for in the
merger. Attributing 2/3 of the Expected Synergies, this
I-43
Chapter One The Merger
analysis indicated an implied exchange ratio reference range of
approximately 0.751 to 1.380, as compared to the exchange ratio
of 0.975 provided for in the merger.
Pro Forma Merger Analysis. Merrill Lynch analyzed the pro
forma impact of the proposed merger on Procter &
Gambles earnings per share, earnings per share excluding
one-time charges and earnings per share excluding one-time
charges and new amortization for the fiscal years ending
June 30, 2006, 2007 and 2008. For purposes of this
analysis, Merrill Lynch used the financial information and
projections and Expected Synergies provided by the management of
Procter & Gamble and incorporated Merrill Lynchs
assumptions with respect to the value of identifiable
intangibles created by the proposed merger and various
structural considerations. This analysis yielded the following
range of results:
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Accretion/(Dilution) |
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Fiscal Year Ending June 30, |
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2006E |
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2007E |
|
2008E |
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Earnings per share
|
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$(0.25) $(0.30) |
|
$(0.10) $0.05 |
|
$(0.05) $0.15 |
Earnings per share excluding one-time charges
|
|
(0.21) (0.26) |
|
(0.09) 0.06 |
|
(0.05) 0.15 |
Earnings per share excluding one-time charges and new
amortization
|
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(0.16) (0.21) |
|
(0.03) 0.12 |
|
0.00 0.20 |
Other Factors. In the course of preparing its opinion,
Merrill Lynch also reviewed and considered other information and
data, including the following:
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trading characteristics of Procter & Gamble and
Gillette; |
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historical market prices for Procter & Gamble common
stock and Gillette common stock; |
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financial, operating and stock market data of Procter &
Gamble and Gillette, as compared to corresponding data of
selected publicly traded companies in the consumer products
industry, none of which was sufficiently similar to
Procter & Gamble or Gillette to draw any conclusions
with respect to such financial, operating and stock market
data; and |
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selected research analysts reports on Procter &
Gamble and Gillette, including stock price targets of those
analysts, discounted back to present value at an estimated cost
of equity of 10%. |
Miscellaneous. Pursuant to the terms of Merrill
Lynchs engagement, Procter & Gamble has agreed to
pay Merrill Lynch (a) a fee of $1.5 million upon the
delivery of its opinion to the Procter & Gamble board
of directors and (b) customary compensation upon completion
of the merger, from which any fees previously paid will be
deducted. Procter & Gamble also has agreed to reimburse
Merrill Lynch for reasonable expenses incurred by Merrill Lynch
in performing its services and to indemnify Merrill Lynch and
related persons and entities against liabilities, including
liabilities under the U.S. federal securities laws, arising
out of Merrill Lynchs engagement.
Procter & Gamble retained Merrill Lynch based upon
Merrill Lynchs experience and expertise. Merrill Lynch is
an internationally recognized investment banking and advisory
firm. Merrill Lynch, as part of its investment banking business,
is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes.
Merrill Lynch has, in the past, provided financial advisory and
financing services to Procter & Gamble and Gillette
unrelated to the merger, including having acted as financial
advisor to Procter & Gamble in its acquisition of Wella
AG in 2003 and as an underwriter in Procter &
Gambles $1 billion bond offering in November 2003,
and has received fees for the rendering of those services. As of
the date of its opinion, Merrill Lynch was mandated to be the
sole lead arranger, book runner and syndication agent on a
I-44
Chapter One The Merger
$2 billion revolving credit facility for the benefit of an
affiliate of Procter & Gamble and was a lender in the
credit facilities of both Procter & Gamble and
Gillette. In the ordinary course of business, Merrill Lynch and
its affiliates may actively trade in the securities of
Procter & Gamble and Gillette for their own accounts
and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Opinions of Gillettes Financial Advisors
Goldman Sachs. Goldman Sachs rendered its opinion to the
Gillette board of directors that, as of January 27, 2005
and based upon and subject to the factors, assumptions,
procedures, limitations and qualifications set forth in such
opinion, the exchange ratio of 0.975 of a share of Procter &
Gamble common stock to be received for each share of Gillette
common stock pursuant to the merger agreement was fair from a
financial point of view to the holders of shares of Gillette
common stock.
The full text of the opinion of Goldman Sachs, dated
January 27, 2005, which sets forth assumptions made,
procedures followed, factors considered and limitations and
qualifications on the review undertaken in connection with the
opinion, is attached as Annex C hereto and incorporated
herein by reference. The opinion of Goldman Sachs should be read
in its entirety. Goldman Sachs provided its opinion for the
information and assistance of the Gillette board of directors in
connection with its consideration of the transaction
contemplated by the merger agreement. The Goldman Sachs opinion
is not a recommendation as to how any holder of shares of
Gillette common stock should vote with respect to the merger
agreement.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
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the merger agreement; |
|
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|
certain publicly available business and financial information
relating to Gillette and Procter & Gamble; |
|
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|
certain financial estimates and forecasts relating to the
business and financial prospects of Gillette prepared by certain
research analysts that were publicly available; |
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|
certain internal financial information and other data relating
to the business and financial prospects of Gillette, including
financial analyses and forecasts for Gillette prepared by its
management (the Gillette Forecasts), and certain
cost savings and operating synergies projected by the
managements of Gillette and Procter & Gamble to result
from the merger (collectively, the Synergies), in
each case provided to Goldman Sachs by the management of
Gillette and not publicly available; |
|
|
|
certain financial information and other data relating to the
business of Procter & Gamble provided to Goldman Sachs
by the managements of Gillette and Procter & Gamble,
which were not publicly available, which information did not
include forecasts for Procter & Gamble; and |
|
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|
certain financial estimates and forecasts relating to the
business and financial prospects of Procter & Gamble
prepared by certain research analysts that were publicly
available, as adjusted and provided to Goldman Sachs and UBS by
the management of Gillette following their discussions with the
management of Procter & Gamble as to public guidance
expected to be given by Procter & Gamble
contemporaneously with the announcement of the merger (the
Procter & Gamble Adjusted Street Forecasts). |
Goldman Sachs also held discussions with members of the senior
management of Gillette and Procter & Gamble regarding
their assessment of the strategic rationale for, and the
potential benefits of, the merger and the past and current
business operations, financial condition and future prospects of
Gillette and Procter & Gamble (including as a result of
the significant stock buyback being announced by
Procter & Gamble contemporaneously with the merger). In
addition, Goldman Sachs reviewed the reported price and trading
activity for the Gillette common stock and the
Procter & Gamble common stock, compared certain
publicly available financial and stock market information for
Gillette and
I-45
Chapter One The Merger
Procter & Gamble with similar financial and stock
market information for certain other companies the securities of
which are publicly traded, reviewed certain financial terms of
certain recent publicly available business combinations in the
consumer products industry specifically and in other industries
generally, considered certain pro forma effects of the merger
and performed such other studies and analyses, and considered
such other factors, as Goldman Sachs considered appropriate.
In connection with Goldman Sachs review, with the consent
of the Gillette board of directors, Goldman Sachs relied upon
the accuracy and completeness of all of the financial,
accounting, legal, tax and other information discussed with or
reviewed by Goldman Sachs, with the consent of the Gillette
board of directors, assumed such accuracy and completeness for
purposes of rendering Goldman Sachs opinion, and with the
consent of the Gillette board of directors did not assume any
responsibility for independent verification of any of such
information. With respect to the Gillette Forecasts, the
Synergies, and any other estimates or pro forma effects
discussed with or reviewed by Goldman Sachs, Goldman Sachs
assumed at the direction of the Gillette board of directors that
they have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of Gillette.
With respect to the Synergies and such pro forma effects,
Goldman Sachs assumed with the consent of the Gillette board of
directors, that they will be realized in the amounts and time
periods forecasted. Goldman Sachs was not provided
Procter & Gambles internal financial analyses and
forecasts for the year 2005 and beyond, and therefore Goldman
Sachs did not consider such analyses and forecasts in connection
with its review or the rendering of its opinion. Based on
Goldman Sachs discussions with the Gillette board of
directors and at the direction of the Gillette board of
directors, Goldman Sachs assumed that the Procter &
Gamble Adjusted Street Forecasts were a reasonable basis upon
which to evaluate the future performance of Procter &
Gamble, and at the direction of the Gillette board of directors
Goldman Sachs used the Procter & Gamble Adjusted Street
Forecasts for purposes of its analyses and its opinion. In
addition, at the direction of the Gillette board of directors,
Goldman Sachs did not make an independent evaluation or
appraisal of the assets and liabilities (including, but not
limited to any contingent, derivative or off-balance-sheet
assets and liabilities) of Gillette or Procter & Gamble
or any of their respective subsidiaries. No evaluation or
appraisal of the assets or liabilities of Gillette or
Procter & Gamble or any of their respective
subsidiaries was furnished to Goldman Sachs. Goldman Sachs also
assumed that all governmental, regulatory or other consents and
approvals necessary for the consummation of the merger will be
obtained without any adverse effect on Gillette or
Procter & Gamble or on the expected benefits of the
merger in any way meaningful to its analyses. Goldman Sachs
assumed that the merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. In
rendering its opinion, Goldman Sachs assumed that Gillette and
Procter & Gamble will comply with all the material
terms of the merger agreement.
The Goldman Sachs opinion did not address the underlying
business decision of Gillette to engage in the merger, nor did
Goldman Sachs express any opinion as to the value of the
Procter & Gamble common stock when and if issued in the
merger or the prices at which shares of the Procter &
Gamble common stock or the Gillette common stock will trade at
any time. Goldman Sachs was not asked to, nor did it, offer any
opinion as to the terms of the merger agreement (other than as
to the fairness from a financial point of view of the exchange
ratio of 0.975 of a share of Procter & Gamble common
stock to be received for each share of Gillette common stock
pursuant to the merger agreement by the holders of
Gillettes common stock as set forth in its opinion) or as
to the form of the merger or any other matter. Goldman
Sachs advisory services and opinion were provided for the
information and assistance of the Gillette board of directors in
connection with its consideration of the merger and such opinion
did not constitute a recommendation as to how any holder of
shares of Gillette common stock should vote with respect to such
transaction. Goldman Sachs opinion was necessarily based
on economic, monetary, market and other conditions as in effect
on, and the information made available to Goldman Sachs as of,
the date of its opinion.
Subsequent developments may affect Goldman Sachs opinion,
but Goldman Sachs does not have any obligation to update, revise
or reaffirm its opinion.
I-46
Chapter One The Merger
Goldman Sachs and its affiliates, as part of their investment
banking business, are continually engaged in performing
financial analyses with respect to businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. Goldman Sachs has acted as
financial advisor to Gillette in connection with, and has
participated in certain of the negotiations leading to, the
transaction contemplated by the merger agreement. In addition,
Goldman Sachs commercial bank affiliate is a lender under
credit facilities of Gillette and Goldman Sachs is familiar with
Gillette having provided certain investment banking services to
Gillette from time to time, including having acted as:
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Gillettes financial advisor in connection with the
acquisition of certain assets of Den-Mat Corporation in April
2004; |
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|
sole manager with respect to a public offering of
Gillettes 4.125% Senior Notes due 2007 (aggregate
principal amount $250,000,000) in August 2002; and |
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|
joint lead manager with respect to a secondary public offering
of 40,895,000 shares of Gillette common stock in July 2001. |
Goldman Sachs commercial bank affiliate is also a lender
under credit facilities of Procter & Gamble and Goldman
Sachs has provided certain investment banking services to
Procter & Gamble from time to time, including having
acted as:
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|
financial advisor in connection with the sale of Sunny Delight
in August 2004; |
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|
lead manager with respect to a public offering of
Procter & Gambles 4.95% Senior Notes due
2014 and 5.8% Senior Notes due 2034 (aggregate principal
amount $1,500,000,000) in August 2004; |
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|
joint lead manager with respect to a public offering of
Procter & Gambles Senior Floating Rate
Notes Series A (aggregate principal amount
$1,500,000,000) in August 2004; |
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|
lead manager with respect to a public offering of
Procter & Gambles 5.5% Notes due 2034
(aggregate principal amount $500,000,000) in January 2004; |
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|
co-lead manager with respect to a public offering of
Procter & Gambles 4.85% Notes due 2015
(aggregate principal amount $150,000,000) in December 2003; |
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|
lead manager with respect to a public offering of
Procter & Gambles 3.5% Notes due 2008 and
4.85% Notes due 2015 (aggregate principal amount
$1,200,000,000) in November 2003; |
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|
joint-lead manager with respect to a public offering of
Procter & Gambles 4.3% Notes due 2008
(aggregate principal amount $500,000,000) in July 2002; |
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|
agent in Procter & Gambles share repurchase
program; |
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agent in Procter & Gambles medium term note
program; and |
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dealer in Procter & Gambles commercial paper
program. |
Goldman Sachs also may provide investment-banking services to
Gillette and Procter & Gamble in the future. In
connection with the above-described investment banking services
Goldman Sachs has received, and may receive, compensation.
Goldman Sachs is a full service securities firm engaged, either
directly or through its affiliates, in securities trading,
investment management, financial planning and benefits
counseling, risk management, hedging, financing and brokerage
activities for both companies and individuals. In the ordinary
course of these activities, Goldman Sachs and its affiliates may
provide such services to Gillette, Procter & Gamble and
their respective affiliates, may actively trade the debt and
equity securities (or related derivative securities) of Gillette
and Procter & Gamble for their own account and for the
accounts of their customers and may at any time hold long and
short positions of such securities.
I-47
Chapter One The Merger
The Gillette board of directors selected Goldman Sachs as one of
its financial advisors because it is an internationally
recognized investment banking firm that has substantial
experience in transactions similar to the merger and is familiar
with Gillette and its business. Pursuant to a letter agreement
dated October 19, 2004, Gillette engaged Goldman Sachs to
act as its financial advisor in connection with the contemplated
transaction. Pursuant to the terms of this engagement letter,
Gillette has agreed to pay Goldman Sachs a transaction fee of up
to $30,000,000, payable upon the completion of the merger and
substantially all of which is contingent and payable only if the
merger is completed. In addition, Gillette has agreed to
reimburse Goldman Sachs for its reasonable expenses, including
attorneys fees and disbursements, and to indemnify Goldman
Sachs and related persons against various liabilities, including
certain liabilities under the federal securities laws.
UBS. UBS rendered its opinion to the Gillette board of
directors that, as of January 27, 2005 and based upon and
subject to the factors, assumptions, procedures, limitations and
qualifications set forth in such opinion, the exchange ratio of
0.975 of a share of Procter & Gamble common stock to be
received for each share of Gillette common stock pursuant to the
merger agreement was fair from a financial point of view to the
holders of shares of Gillette common stock.
The full text of the opinion of UBS, dated January 27,
2005, which sets forth assumptions made, procedures followed,
factors considered and limitations and qualifications on the
review undertaken in connection with the opinion, is attached as
Annex D hereto and incorporated herein by reference. The
opinion of UBS should be read in its entirety. UBS provided its
opinion for the information and assistance of the Gillette board
of directors in connection with its consideration of the
transaction contemplated by the merger agreement. The UBS
opinion is not a recommendation as to how any holder of shares
of Gillette common stock should vote with respect to the merger
agreement.
In connection with rendering the opinion described above and
performing its related financial analyses, UBS, among other
things:
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|
reviewed the merger agreement; |
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|
reviewed certain publicly available business and financial
information relating to Gillette and Procter & Gamble; |
|
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|
reviewed certain financial estimates and forecasts relating to
the business and financial prospects of Gillette prepared by
certain research analysts that were publicly available; |
|
|
|
reviewed certain internal financial information and other data
relating to the business and financial prospects of Gillette,
including the Gillette Forecasts, and the Synergies, in each
case provided to UBS by the management of Gillette and not
publicly available; |
|
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|
reviewed certain financial information and other data relating
to the business of Procter & Gamble provided to UBS by
the managements of Gillette and Procter & Gamble, which
were not publicly available, which information did not include
forecasts for Procter & Gamble; |
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reviewed the Procter & Gamble Adjusted Street Forecasts; |
|
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|
reviewed the reported price and trading activity for the
Gillette common stock and the Procter & Gamble common
stock; |
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|
compared certain publicly available financial and stock market
information for Gillette and Procter & Gamble with
similar financial and stock market information with respect to
certain other companies in lines of business UBS believed to be
generally comparable to those of Gillette and Procter &
Gamble; |
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compared the financial terms of the merger with certain other
transactions which UBS believed to be generally relevant; |
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considered certain pro forma effects of the merger on
Procter & Gambles financial statements; |
I-48
Chapter One The Merger
|
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|
conducted discussions with members of the senior management of
Gillette and Procter & Gamble concerning their
assessment of the strategic rationale for, and the potential
benefits of, the merger and the past and current business
operations, financial condition and future prospects of Gillette
and Procter & Gamble (including as a result of the
significant stock buyback being announced by Procter &
Gamble contemporaneously with the merger); and |
|
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conducted such other financial studies, analyses, and
investigations and considered such other information as UBS
deemed necessary or appropriate. |
In connection with UBS review, with the consent of the
Gillette board of directors, UBS relied upon the accuracy and
completeness of all of the financial, accounting, legal, tax and
other information discussed with or reviewed by UBS, with the
consent of the Gillette board of directors assumed such accuracy
and completeness for purposes of rendering its opinion, and with
the consent of the Gillette board of directors did not assume
any responsibility for independent verification of any of such
information. With respect to the Gillette Forecasts, the
Synergies, and any other estimates or pro forma effects
discussed with or reviewed by UBS, UBS assumed, at the direction
of the Gillette board of directors, that they were reasonably
prepared on a basis reflecting the best currently available
estimates and judgments of Gillette. With respect to the
Synergies and such pro forma effects, UBS assumed with the
consent of the Gillette board of directors that they will be
realized in the amounts and time periods forecasted. UBS was not
provided Procter & Gambles internal financial
analyses and forecasts for the year 2005 and beyond, and
therefore UBS did not consider such analyses and forecasts in
connection with its review or the rendering of its opinion.
Based on UBS discussions with the Gillette board of
directors and at the direction of the Gillette board of
directors, UBS assumed that the Procter & Gamble
Adjusted Street Forecasts were a reasonable basis upon which to
evaluate the future performance of Procter & Gamble,
and at the direction of the Gillette board of directors UBS used
the Procter & Gamble Adjusted Street Forecasts for
purposes of its analyses and its opinion. In addition, at the
direction of the Gillette board of directors, UBS did not make
an independent evaluation or appraisal of the assets and
liabilities (contingent or otherwise) of Gillette or
Procter & Gamble or any of their respective
subsidiaries nor was it furnished with any such evaluation or
appraisal. UBS also assumed that all governmental, regulatory or
other consents and approvals necessary for the consummation of
the merger will be obtained without any adverse effect on
Gillette or Procter & Gamble or on the expected
benefits of the merger in any way meaningful to its analyses.
UBS assumed that the merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. In
rendering its opinion, UBS assumed that Gillette and
Procter & Gamble will comply with all the material
terms of the merger agreement.
The UBS opinion did not address the underlying business decision
of Gillette to engage in the merger, nor did UBS express any
opinion as to the value of the Procter & Gamble common
stock when and if issued in the merger or the prices at which
shares of Procter & Gamble common stock or Gillette
common stock will trade at any time. UBS was not asked to, nor
did it, offer any opinion as to the terms of the merger
agreement (other than as to the fairness from a financial point
of view of the exchange ratio of 0.975 pursuant to the merger
agreement to the holders of shares of Gillette common stock as
set forth in its opinion) or as to the form of the merger or any
other matter. The UBS opinion was provided for the information
and assistance of the Gillette board of directors in connection
with its consideration of the merger and such opinion did not
constitute a recommendation as to how any holder of shares of
Gillette common stock should vote with respect to such merger.
The UBS opinion was necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
made available to UBS as of, the date of its opinion.
Subsequent developments may affect UBS opinion, but UBS
does not have any obligation to update, revise or reaffirm its
opinion.
In the past, UBS and its predecessors have provided investment
banking services to Gillette and Procter & Gamble
unrelated to the merger, including acting as Gillettes
financial advisor on its acquisition of Zooth, Inc. in June 2004
and acting as Gillettes general strategic and financial
advisor during 2002, 2003 and 2004, for which services UBS has
received reasonable and customary compensation. In the ordinary
course of business, UBS, its successors and affiliates may hold
or trade securities of Gillette or
I-49
Chapter One The Merger
Procter & Gamble or their respective affiliates for
their own accounts and accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
The Gillette board of directors selected UBS as one of its
financial advisors in connection with the transaction because
UBS is an internationally recognized investment banking firm
with substantial experience in similar transactions and is
familiar with Gillette and its business. UBS is continually
engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities and private
placements.
Pursuant to a letter agreement dated November 23, 2004,
Gillette engaged UBS to act as its financial advisor in
connection with the contemplated transaction. Pursuant to the
terms of this engagement letter, Gillette has agreed to pay UBS
a transaction fee of up to $30,000,000, payable upon
consummation of the merger and substantially all of which is
contingent and payable only if the merger is completed. In
addition, Gillette has agreed to reimburse UBS for its
reasonable expenses, including attorneys fees and
disbursements, and to indemnify UBS and related persons against
various liabilities, including certain liabilities under the
federal securities laws.
Financial Analyses used by Goldman Sachs and UBS. The
following is a summary of the material financial analyses relied
upon by Goldman Sachs and UBS in connection with rendering the
opinions described above and presented to the Gillette board of
directors at the meeting held on January 27, 2005. Goldman
Sachs and UBS collaborated in performing each of the financial
analyses summarized below. The following summary, however, does
not purport to be a complete description of such financial
analyses. Some of the summaries of the financial analyses
include information presented in tabular format. The tables must
be read together with the full text of each summary and are
alone not a complete description of the financial analyses
performed by Goldman Sachs and UBS. Except as otherwise noted,
the following quantitative information, to the extent that it is
based on market data, is based on market data as it existed on
or before January 26, 2005 and is not necessarily
indicative of current market conditions.
Transaction Overview and Valuation Statistics. Goldman
Sachs and UBS reviewed with the Gillette board of directors the
basic structure of the transaction as described to Goldman Sachs
and UBS by Gillette management, including the following:
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consideration in the form of 100% Procter & Gamble
common stock; |
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the fixed exchange ratio of 0.975 (Procter & Gamble
share per Gillette share); |
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|
the implied offer value of $54.05 per share (based on the
closing price of Procter & Gambles common stock
of $55.44 on January 26, 2005), representing equity value
of $55 billion and enterprise value of $57 billion; |
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a premium of 20.1% (based on the closing price of
Gillettes common stock of $45.00 on January 26, 2005); |
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pro forma ownership, based on fully diluted shares per treasury
method, by current Procter & Gamble stockholders and
current Gillette stockholders of 73.8% and 26.8%, respectively,
of the combined company; and |
|
|
|
a pro forma dividend of $0.975 per share (an increase of
50% over the current dividend of $0.65 per share). |
In addition, Goldman Sachs and UBS reviewed with the Gillette
board of directors the fact that Gillette and
Procter & Gamble had described to Goldman Sachs
and UBS Procter & Gambles plan to execute
approximately a $20 billion open-market share repurchase by
June 2006 (to resume normal course repurchase thereafter of
approximately $5 billion per annum).
I-50
Chapter One The Merger
Goldman Sachs and UBS calculated for the Gillette board of
directors various multiples and premiums resulting from the
merger. The following table presents the results of Goldman
Sachs and UBS calculations:
|
|
|
|
|
|
|
Gillette at | |
January 26, 2005 |
|
offer price: | |
| |
EV/ CY2004E
Sales(1)
|
|
|
5.5x |
|
EV/ CY2004E
EBITDA(1)
|
|
|
18.8 |
|
CY2005E P/
E(1)
|
|
|
28.5 |
|
CY2006E P/
E(1)
|
|
|
25.6 |
|
Premium
to(2):
|
|
|
|
|
1 day (based on Gillette closing price of $45.00 on 1/26/05)
|
|
|
20.1 |
% |
3 month average
|
|
|
22.3 |
% |
6 month average
|
|
|
26.6 |
% |
1 year average
|
|
|
30.2 |
% |
52 week high
|
|
|
18.7 |
% |
52 week low
|
|
|
45.9 |
% |
3 year average
|
|
|
52.4 |
% |
|
|
(1) |
Estimates for Gillette at offer price per IBES, except for 2004E
Sales, diluted shares and net debt, per Gillettes
management. |
|
(2) |
Averages based on trading days. |
Historical Stock Trading Analysis and Relative Trading.
Goldman Sachs and UBS reviewed the historical trading prices for
shares of Gillette common stock and Procter & Gamble
common stock for the three-year period from January 26,
2002 through January 26, 2005 and the one-year period from
January 26, 2004 to January 26, 2005. Goldman Sachs
and UBS also analyzed the historical trading ratio of the
respective common stock of Gillette and Procter &
Gamble for various periods between January 26, 2004 and
January 26, 2005 as set forth in the table below, and
compared it to the offer ratio of 0.975 to be paid pursuant to
the merger agreement:
|
|
|
|
|
Current (Spot) |
|
Average | |
| |
January 26, 2005
|
|
|
0.812x |
|
1 Week
|
|
|
0.801x |
|
1 Month
|
|
|
0.800x |
|
3 Months
|
|
|
0.805x |
|
6 Months
|
|
|
0.780x |
|
1 Year
|
|
|
0.770x |
|
High
|
|
|
0.829x |
|
Low
|
|
|
0.703x |
|
Discounted Cash Flow Analysis Gillette.
Goldman Sachs and UBS performed (a) a discounted cash flow
analysis with respect to Gillette that used (i) consensus
estimates with respect to Gillette provided by the Institutional
Brokerage Estimate System, or IBES (a data service that compiles
estimates issued by securities analysts) for fiscal years 2005
and 2006 and (ii) per Gillette management, annual earnings
per share, or EPS, growth at the IBES long-term growth rate of
11.1% for 2007 through 2009 (the Gillette Street
Case), which Gillette management has informed Goldman
Sachs and UBS approximated Gillette managements strategic
plan re-based for earnings performance in the second half of
2004, as well as (b) a discounted cash flow analysis with
respect to Gillette that used the internal financial forecasts
prepared by Gillette management (Gillette Management
Upside Case) for fiscal years 2005 through 2009 provided
to Goldman Sachs and UBS by Gillette management. Goldman Sachs
and UBS assumed discount rates ranging from 8.0% to 9.0%,
calculated present values of the unleveraged after-tax
I-51
Chapter One The Merger
cash flows generated over the period covered by the financial
forecasts and then added terminal values assuming perpetuity
growth rates ranging from 3.0% to 4.0%. This analysis indicated
implied equity values per Gillette share ranging from $37.69 to
$54.61, based on the Gillette Street Case for Gillette, and
implied equity values per Gillette share ranging from $42.76 to
$61.81, based on the Gillette Management Upside Case, as
compared to the implied offer value of $54.05 per share
(based on the closing price of Procter & Gambles
common stock of $55.44 on January 26, 2005).
Discounted Cash Flow Analysis Procter &
Gamble. Goldman Sachs and UBS performed a discounted cash
flow analysis with respect to Procter & Gamble that
used the Procter & Gamble Adjusted Street Forecasts
(which reflect the IBES consensus estimate for 2005 for
Procter & Gamble, adjusted to reflect revised
Procter & Gamble management guidance given to the
public on January 27, 2005 and EPS growth at IBES long-term
growth rate of 10.9% thereafter, per Gillettes management)
for fiscal years 2005 through 2009, assumed discount rates
ranging from 8.0% to 9.0%, calculated present values of the
unleveraged after-tax cash flows generated over the period
covered by the financial forecasts and then added terminal
values assuming perpetuity growth rates ranging from 3.0% to
4.0%. This analysis indicated implied equity values per
Procter & Gamble share ranging from $53.11 to $78.05,
as compared to the closing price of $55.44 of the
Procter & Gamble common stock on January 26, 2005.
Selected Companies Analysis. Goldman Sachs and UBS
reviewed certain financial information for Gillette and compared
it to corresponding financial information, ratios and public
market multiples for the following selected publicly traded
companies in the consumer products industry:
|
|
|
|
|
Avon; |
|
|
|
Clorox; |
|
|
|
Colgate-Palmolive; |
|
|
|
Estee Lauder; |
|
|
|
Kimberly Clark; |
|
|
|
LOreal; and |
|
|
|
Reckitt Benckiser. |
Although none of the selected companies was directly comparable
to Gillette, the companies included were chosen because they are
publicly traded companies with business, end markets and
operations that, for purposes of analysis, may be considered
similar to certain business, end markets and operations of
Gillette.
Goldman Sachs and UBS calculated and compared various public
market multiples and ratios of the selected companies based on
information they obtained from company filings and IBES. As part
of their analyses of the selected companies, Goldman Sachs and
UBS derived medians, means and ranges for such multiples and
ratios and then compared those to the comparable multiples and
ratios for Gillette and Procter & Gamble. The multiples
and ratios of the selected companies, of Procter &
Gamble, and of Gillette at market were based on IBES consensus
estimates and company filings. The Gillette Street Case
estimates for Gillette were based on IBES consensus estimates,
except for estimated 2004 sales, EBITDA (earnings before
interest, taxes, depreciation and amortization), diluted shares
and net debt, which were based on Gillette managements
estimates. The multiples and ratios of Procter &
Gamble, of Gillette and of the selected companies were
calculated using public trading market closing prices on
January 26, 2005 and using the implied offer value of
$54.05 per share (based on the closing price of
Procter & Gambles common stock of $55.44 on
January 26, 2005). With respect to Procter &
Gamble, Gillette and the selected companies, Goldman Sachs and
UBS calculated:
|
|
|
|
|
the enterprise value, which is the market value of common equity
plus the book value of debt plus the book value of minority
interests less cash and investments and less investments in
unconsolidated affiliates, as a multiple of estimated 2004 sales; |
I-52
Chapter One The Merger
|
|
|
|
|
the enterprise value as a multiple of estimated 2004 and 2005
EBITDA; |
|
|
|
the ratio of the price per share to the estimated 2005 and 2006
EPS (earnings per share), or P/ E multiple; and |
|
|
|
the ratio of the estimated 2005 P/ E multiple to year-over-year
earnings growth rate, or PEG. |
The results of these analyses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value/CY: | |
|
|
|
|
|
CY | |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
Sales | |
|
EBITDA | |
|
CY P/E | |
|
2005E | |
|
LT | |
|
|
| |
|
| |
|
| |
|
| |
|
Growth | |
|
|
2004E | |
|
2004E | |
|
2005E | |
|
2005E | |
|
2006E | |
|
PEG | |
|
Rate(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Selected Companies in the Consumer Products Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median
|
|
|
2.6 |
x |
|
|
12.0 |
x |
|
|
11.0 |
x |
|
|
19.5 |
x |
|
|
17.3 |
x |
|
|
2.0 |
x |
|
|
9.4% |
|
Mean
|
|
|
2.5 |
x |
|
|
12.2 |
x |
|
|
11.4 |
x |
|
|
19.7 |
x |
|
|
17.6 |
x |
|
|
2.0 |
x |
|
|
10.2% |
|
Range
|
|
|
1.8x-3.0 |
x |
|
|
10.1x-14.7 |
x |
|
|
9.7x-13.0 |
x |
|
|
16.8x-22.2 |
x |
|
|
15.5x-20.2 |
x |
|
|
1.6x-2.3 |
x |
|
|
8.1%- 13.0% |
|
Procter & Gamble
|
|
|
3.2 |
x |
|
|
13.9 |
x |
|
|
12.8 |
x |
|
|
20.2 |
x |
|
|
18.3 |
x |
|
|
1.9 |
x |
|
|
10.9% |
|
Gillette at Jan. 26 2005 closing price
|
|
|
4.7 |
x |
|
|
16.2 |
x |
|
|
14.6 |
x |
|
|
23.7 |
x |
|
|
21.3 |
x |
|
|
2.1 |
x |
|
|
11.1% |
|
Gillette at $54.05 (Gillette Street Case)
|
|
|
5.5 |
x |
|
|
18.8 |
x |
|
|
17.4 |
x |
|
|
28.5 |
x |
|
|
25.6 |
x |
|
|
2.6 |
x |
|
|
11.1% |
|
Gillette at $54.05 (Gillette Mgmt. Upside Case)
|
|
|
5.5 |
x |
|
|
18.8 |
x |
|
|
16.2 |
x |
|
|
26.2 |
x |
|
|
22.9 |
x |
|
|
2.1 |
x |
|
|
12.6% |
|
|
|
Note: |
International companies converted at spot exchange rates of
1/26/05. International companies multiples adjusted for good
will. |
|
|
|
|
(1) |
Per IBES, except for Gillette Management Case, which is per
Gillette management. |
Selected Transaction Analysis. Goldman Sachs and UBS
analyzed certain information relating to the following selected
transactions in the consumer products industry since 1997.
|
|
|
|
|
Date Announced |
|
Acquirer |
|
Target |
|
Dec-2003
|
|
Henkel |
|
Dial |
Oct-2003
|
|
Tchibo |
|
Beiersdorf |
Mar-2003
|
|
Procter & Gamble |
|
Wella |
Jan-2003
|
|
Energizer |
|
Schick-Wilkinson Sword (Pfizer) |
Dec-2002
|
|
Cadbury Schweppes |
|
Adams (Pfizer) |
Nov-2001
|
|
Johnson Wax Professional |
|
DiverseyLever (Unilever) |
May 2001
|
|
Procter & Gamble |
|
Clairol (Bristol Myers Squibb) |
Jan-2001
|
|
Nestle S.A. |
|
Ralston Purina |
Dec-2000
|
|
Pepsi |
|
Quaker Oats |
Oct-2000
|
|
SmithKline Beecham |
|
Block Drug |
Jun-2000
|
|
Philip Morris |
|
Nabisco |
Jun-2000
|
|
Unilever |
|
Bestfoods |
Jul-1999
|
|
Reckitt & Colman |
|
Benckiser |
Oct-1998
|
|
Newell |
|
Rubbermaid |
Oct-1998
|
|
Clorox |
|
First Brands |
Oct-1997
|
|
S.C. Johnson & Son |
|
DowBrands (Dow Chemical) |
Apr-1997
|
|
Procter & Gamble |
|
Tambrands |
I-53
Chapter One The Merger
For each of the selected transactions and for the transaction
contemplated by the merger agreement, Goldman Sachs and UBS
calculated and compared the resulting:
|
|
|
|
|
transaction value (enterprise value as if 100% of target was
acquired); |
|
|
|
enterprise value as multiple of the LTM (last twelve months)
sales and LTM EBITDA; and |
|
|
|
premium paid over the stock price one-week prior to announcement. |
For purposes of this analysis, enterprise value was calculated
by determining each target companys implied equity value
and then adding the book value of each target companys net
debt and minority interest, or was obtained from other publicly
disclosed information as of the respective announcement dates.
LTM sales, EBITDA, net debt and minority interest were
calculated using each target companys most recent
quarterly filing with the SEC or other publicly disclosed
information as of the respective announcement dates.
The following table presents the results of this analysis for
the selected transactions over $5 billion:
|
|
|
|
|
|
|
|
|
Multiple of LTM: |
|
|
|
|
Sales |
|
EBITDA |
|
Premium to 1 Week Prior to Announcement |
|
|
|
|
|
|
|
Median
|
|
2.5x |
|
15.6x |
|
19.3% |
Mean
|
|
2.6x |
|
15.6x |
|
25.6% |
Range
|
|
1.9x-4.1x |
|
13.7x-17.6x |
|
5.3%-65.5% |
Gillette at $54.05
|
|
5.5x |
|
18.8x |
|
20.1%(1) |
|
|
(1) |
Relative to closing price on Wednesday January 19, 2005. |
The following table presents the results of this analysis for
all of the selected transactions:
|
|
|
|
|
|
|
|
|
Multiple of LTM: |
|
|
|
|
Sales |
|
EBITDA |
|
Premium to 1 Week Prior to Announcement |
|
|
|
|
|
|
|
Median
|
|
2.2x |
|
13.0x |
|
19.3% |
Mean
|
|
2.2x |
|
13.2x |
|
29.1% |
Range
|
|
1.1x-4.1x |
|
8.4x-17.6x |
|
5.3%-92.6% |
Gillette at $54.05
|
|
5.5x |
|
18.8x |
|
20.1%(1) |
|
|
(1) |
Relative to closing price on Wednesday January 19, 2005. |
Large Cap Transactions Premium Paid Analysis. Using
publicly available information, Goldman Sachs and UBS calculated
the premium paid over the stock price one week prior to
announcement in selected all-stock transactions where the
consideration paid exceeded $10 billion in each year from
2000 to 2004 as set forth below:
|
|
|
|
|
|
|
|
|
|
|
Median Premium | |
|
Range of Premiums | |
|
|
Paid One Week Pre- | |
|
Paid One Week Pre- | |
|
|
Announcement in | |
|
Announcement in | |
|
|
Selected Large Cap | |
|
Selected Large Cap | |
Year |
|
Transactions | |
|
Transactions | |
| |
2004
|
|
|
20.1 |
% |
|
|
3.1%-31.5% |
|
2003
|
|
|
21.3 |
% |
|
|
17.6%-39.0% |
|
2002
|
|
|
29.7 |
% |
|
|
22.9%-36.6% |
|
2001
|
|
|
28.0 |
% |
|
|
10.2%-36.7% |
|
2000
|
|
|
43.0 |
% |
|
|
13.5%-74.7% |
|
These results were compared to the 20.1% premium to be paid to
Gillette shareholders based on the exchange ratio of 0.975
pursuant to the merger agreement times Procter &
Gambles closing stock price on January 26, 2005 over
Gillettes closing stock price on January 19, 2005.
I-54
Chapter One The Merger
Contribution Analysis. Goldman Sachs and UBS reviewed
certain historical and estimated future operating and financial
information, including among other things, sales, EBITDA, EBIT
(earnings before interest and taxes), and net income for
Procter & Gamble, Gillette and the pro forma combined
company, based on publicly available information and information
from Gillette management, IBES consensus estimates and, in the
case of the At Offer analysis, the estimated amount
of debt and number of shares outstanding for Gillette and
Procter & Gamble as of December 31, 2004 as
supplied by Gillette management. These relative contributions
were compared to the equity value and enterprise value
contributions based on the offer price (based on fully diluted
shares per treasury method without including shares repurchased
between signing and closing, and assuming no pro forma
transaction effects). These analyses, the order of which does
not necessarily reflect their relative significance, indicated
the following contributions by Procter & Gamble and
Gillette for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
Procter & | |
|
|
|
|
Gambles | |
|
Gillettes | |
|
|
Contribution to | |
|
Contribution to | |
|
|
Combined | |
|
Combined | |
|
|
Company | |
|
Company | |
|
|
| |
Sales
|
|
|
|
|
|
|
|
|
|
CY 2004E
|
|
|
83.6 |
% |
|
|
16.4 |
% |
|
CY 2005E
|
|
|
83.8 |
% |
|
|
16.2 |
% |
EBITDA
|
|
|
|
|
|
|
|
|
|
CY 2004E
|
|
|
80.0 |
% |
|
|
20.0 |
% |
|
CY 2005E
|
|
|
79.1 |
% |
|
|
20.9 |
% |
EBIT
|
|
|
|
|
|
|
|
|
|
CY 2004E
|
|
|
80.9 |
% |
|
|
19.1 |
% |
|
CY 2005E
|
|
|
79.7 |
% |
|
|
20.3 |
% |
Net Income
|
|
|
|
|
|
|
|
|
|
CY 2004E
|
|
|
80.3 |
% |
|
|
19.7 |
% |
|
CY 2005E
|
|
|
78.9 |
% |
|
|
21.1 |
% |
|
Net Income CY 2006E
|
|
|
78.4 |
% |
|
|
21.6 |
% |
|
Net Income CY 2007
|
|
|
78.3 |
% |
|
|
21.7 |
% |
|
Net Income CY 2008
|
|
|
78.3 |
% |
|
|
21.7 |
% |
At Market
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
77.2 |
% |
|
|
22.8 |
% |
|
Enterprise Value
|
|
|
77.9 |
% |
|
|
22.1 |
% |
At Offer
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
|
73.8 |
% |
|
|
26.2 |
% |
|
Enterprise Value
|
|
|
74.7 |
% |
|
|
25.3 |
% |
Pro Forma Merger Analysis. Goldman Sachs and UBS analyzed
the pro forma financial effects of the merger on
Procter & Gambles estimated EPS. For Gillette,
Goldman Sachs and UBS used the Gillette Street Case as well as
the Gillette Management Upside Case. For Procter &
Gamble, Goldman Sachs and UBS used the Adjusted
Procter & Gamble Street Forecasts. These analyses are
based on the following assumptions, per Gillettes
management:
|
|
|
|
|
June 2005 closing date; |
|
|
|
after-tax synergies of $1.05 billion phased in 30%, 75% and
100%; |
|
|
|
cash cost to achieve synergies of $0.9 billion over two
years (net of tax); |
I-55
Chapter One The Merger
|
|
|
|
|
approximately 8% of excess purchase price allocated to
intangible assets and amortized over 17 years; |
|
|
|
approximately 2% of excess purchase price allocated to fixed
assets and depreciated over 15 years; |
|
|
|
approximately $20 billion of shares repurchased by June
2006 (to resume normal course repurchase thereafter of
approximately $5 billion per annum); and |
|
|
|
cost of debt based on spread over forward LIBOR curve (initial
share repurchase financed with new debt). |
The estimated financial impact on selected financial statistics
of Procter & Gamble is as follows:
Gillette Street
Case(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006E | |
|
2007E | |
|
2008E | |
|
2009E | |
|
|
| |
EPS Accretion/(Dilution)
|
|
$ |
(0.29 |
) |
|
$ |
(0.07 |
) |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
EPS Accretion/(Dilution) %
|
|
|
(10.0 |
)% |
|
|
(2.3 |
)% |
|
|
0.7 |
% |
|
|
0.5 |
% |
Debt/ EBITDA
|
|
|
2.1 |
x |
|
|
1.8 |
x |
|
|
1.5 |
x |
|
|
1.3x |
|
|
|
(1) |
Assumes June Fiscal Year |
Gillette Management Upside
Case(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006E | |
|
2007E | |
|
2008E | |
|
2009E | |
|
|
| |
EPS Accretion/(Dilution)
|
|
$ |
(0.25 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.09 |
|
|
$ |
0.10 |
|
EPS Accretion/(Dilution) %
|
|
|
(8.7 |
)% |
|
|
(0.7 |
)% |
|
|
2.5 |
% |
|
|
2.5 |
% |
Debt/ EBITDA
|
|
|
2.0 |
x |
|
|
1.7 |
x |
|
|
1.5 |
x |
|
|
1.2x |
|
|
|
(1) |
Assumes June Fiscal Year |
Pro Forma Discounted Cash Flow Analysis. Goldman Sachs
and UBS performed a discounted cash flow analysis on the
combined company in order to derive implied per share equity
values for Gillettes share of the combined company. For
Gillette, Goldman Sachs and UBS used the Gillette Street Case as
well as the Gillette Management Upside Case for fiscal years
2005 through 2009. For Procter & Gamble, Goldman Sachs
and UBS used the Procter & Gamble Adjusted Street
Forecasts for fiscal years 2005 through 2009. In performing
these analyses, Goldman Sachs and UBS made the transaction
assumptions described above. Goldman Sachs and UBS assumed
discount rates ranging from 8.0% to 9.0%, calculated present
values of the unleveraged after-tax cash flows generated over
the period covered by the financial forecasts and then added
terminal values assuming perpetuity growth rates ranging from
3.0% to 4.0%. This analysis indicated implied equity values per
Gillettes share of the combined company ranging from
$51.94 to $77.81, as compared to implied equity values derived
from the Gillette standalone DCF analysis ranging from $37.69 to
$54.61, based on the Gillette Street Case, or ranging from
$53.31 to $79.80, as compared to implied equity values derived
from the Gillette standalone DCF analysis ranging from $42.76 to
$61.81, based on the Gillette Management Upside Case.
The preparation of a fairness opinion is a complex process
involving subjective judgments as to the most appropriate
methods of financial analysis and the application of those
methods to the particular facts and circumstances, and therefore
is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth herein, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying the opinions of Goldman Sachs and UBS. In arriving at
their respective fairness determinations, Goldman Sachs and UBS
each separately considered the results of all of their analyses
and did not form any conclusion as to whether any individual
analysis, considered in isolation, supported or failed to
support an opinion as to fairness from a financial point of
view. Rather, Goldman Sachs and UBS each made their respective
determinations as to fairness
I-56
Chapter One The Merger
on the basis of their experience and professional judgment after
considering the results of all of their analyses assessed as a
whole. No company or transaction referenced in the above
analyses is directly comparable to Gillette or
Procter & Gamble or the merger. Such comparative
analyses necessarily involve complex considerations and
judgments concerning financial and operating characteristics,
market conditions and other factors that could affect the public
trading of the selected companies or terms of the selected
transactions. In addition, mathematical calculations such as
determining the mean or median are not in themselves necessarily
a complete analyses of selected company or transaction data.
Goldman Sachs and UBS prepared the analyses described herein for
purposes of providing their respective opinions to the Gillette
board of directors as to the fairness from a financial point of
view to the holders of shares of Gillette common stock of the
exchange ratio of 0.975 pursuant to the merger agreement. These
analyses do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by these
analyses. Because these analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond
the control of the parties or their respective advisors, none of
Gillette, Procter & Gamble, Goldman Sachs, UBS or any
other person assumes responsibility if future results are
materially different from those forecast.
As described above, each of the respective opinions of Goldman
Sachs and UBS to the Gillette board of directors was one of many
factors taken into consideration by the Gillette board of
directors in making its determination to approve the transaction
contemplated by the merger agreement. Goldman Sachs and UBS were
not asked to, and did not, recommend the specific consideration
payable in the merger, which consideration was determined
through negotiations between Procter & Gamble and
Gillette. The summary contained herein does not purport to be a
complete description of the analyses performed by Goldman Sachs
and UBS in connection with their respective fairness opinions
and is qualified in its entirety by reference to the opinion of
Goldman Sachs and the opinion of UBS attached as Annexes C and
D, respectively.
I-57
Chapter One The Merger
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Interests of Certain Persons in the Merger
Gillettes directors and executive officers have interests
in the merger as individuals in addition to, and that may be
different from, their interests as shareholders. The Gillette
board of directors was aware of these interests and considered
them, among other matters, in its decision to approve the merger
agreement.
Equity Awards. Gillettes executive officers and
non-employee directors participate in the 1971 Stock Option Plan
and the 2004 Long-Term Incentive Plan (which are referred to as
the plans), under which stock options and restricted stock units
have been granted. Under the plans, consummation of the merger
will constitute a change of control. Upon a change of control:
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all outstanding awards vest and become exercisable; and |
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if an employee participant is terminated for any reason other
than for cause or terminates his employment for good reason (as
those terms are defined in the applicable plan), or a
directors service terminates during the two-year period
following the change of control, the applicable exercise period
for all options (including substituted or assumed awards)
granted to that participant will be the greater of two years
from the date of termination or the post-termination exercise
period that would have otherwise applied to those options, but
in no event will any option be exercisable more than ten years
after the applicable grant date. |
Participants in the plans are subject to restrictions on their
ability to solicit Gillette employees or clients or work for a
competitor of Gillette (in each case for an eighteen-month
period following termination of employment), disclose
confidential information, refuse to assign rights to inventions
and make disparaging or defamatory statements about Gillette,
its subsidiaries, stockholders, directors, officers, employees,
agents, representatives or successors. Following a change of
control, under the plans, the restrictions on working for a
competitor, soliciting Gillette employees and making disparaging
or defamatory statements no longer apply.
Under the merger agreement all equity awards will vest, as
described above, and the holders of options will have the choice
as to each option of (1) exercising the option and, upon
payment of the relevant exercise price, receiving, at the
holders election, either (a) shares of
Procter & Gamble common stock based on the same
exchange ratio applicable to shareholders of Gillette in the
merger or (b) the value in cash of the Procter &
Gamble common stock that would otherwise have been delivered on
exercise of the option or (2) subject to actively-employed
holders agreeing to a non-competition covenant, exchanging the
option for a replacement option to acquire Procter &
Gamble common stock with the adjustments to the number of shares
issuable upon the exercise of the option and the option exercise
price reflecting the exchange ratio in the merger, all as more
fully described under Treatment of Gillette Stock
Options.
Employment Agreement with James M. Kilts. The employment
agreement of James M. Kilts, the Chairman, Chief Executive
Officer and President of Gillette as in effect prior to
January 27, 2005 (which is referred to as the employment
agreement), entitled Mr. Kilts to receive certain benefits
in connection with a change of control (as that term
is defined in the employment agreement):
Upon a change of control, under the employment agreement,
consistent with the plans, all outstanding stock options held by
Mr. Kilts would immediately become exercisable and all
other equity awards would fully vest (any stock options granted
prior to 2002 would remain exercisable for a period equal to the
lesser of the remainder of their originally scheduled terms and
five years and any stock options granted in or after 2002 would
remain exercisable for the remainder of their originally
scheduled terms).
Under the employment agreement, Mr. Kilts was also entitled
to the severance provisions described below in connection with
specified terminations of employment, including if he resigned
for good reason or was terminated without
cause (as those terms are defined in the employment
agreement) during the two-year period following a change of
control.
I-58
Chapter One The Merger
Under the terms of the employment agreement, consummation of the
merger will constitute a change of control and Mr. Kilts
would have been entitled to resign for good reason upon
consummation of the merger.
If Mr. Kilts employment terminated as described above
in connection with a change of control, Mr. Kilts would
receive the following severance payments (which are referred to
as severance payments):
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a payment equal to his prorated annual bonus for the year of the
termination calculated based on the greater of his target annual
bonus or his actual annual bonus for any of the prior three full
fiscal years; |
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a payment equal to three times the sum of his annual base salary
and the greater of his target annual bonus or his actual annual
bonus for any of the prior three full fiscal years; |
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a payment equal to the actuarial equivalent of three years of
additional service for purposes of determining the supplemental
pension benefit to which he is entitled; and |
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in the event he was subject to excise tax under
Section 4999 of the Code on any payments made to him, a
make whole payment for such tax liability. |
Mr. Kilts would also receive severance benefits (which are
referred to as severance benefits) consisting of the benefits in
which he was participating on the date of the termination of his
employment, as well as outplacement services.
Under the employment agreement, Mr. Kilts was subject to
various post-employment covenants, including a two-year covenant
with respect to non-competition.
In connection with the execution of the merger agreement, on
January 27, 2005, at the request of Procter &
Gamble, Gillette and Mr. Kilts entered into an amendment to
his employment agreement (which is referred to as the amendment
and the employment agreement as so amended is referred to as the
amended employment agreement). Pursuant to the amendment,
Mr. Kilts agreed to one year of employment with the
combined company following consummation of the merger in the
position of vice-chairman of Procter & Gamble.
Mr. Kilts also agreed that, from the date of the merger
agreement until eighteen months after consummation of the
merger, he would not sell any shares of Gillette or
Procter & Gamble common stock or exercise any Gillette
stock options, or exercise any Procter & Gamble stock
options into which his Gillette common stock and stock options
will be converted in connection with the merger. In addition,
Mr. Kilts agreed to extend the term of his non-competition
covenant by an additional year for a total period of three years
following termination of employment and agreed that the
non-competition covenant would apply to a specified list of
competitors.
In consideration for Mr. Kilts agreeing to the
foregoing, upon consummation of the merger, pursuant to the
terms of the amendment, Procter & Gamble will grant
Mr. Kilts options to purchase 1,000,000 shares of
Procter & Gamble common stock, half of which will vest
on the first anniversary of consummation of the merger and the
other half of which will vest on the second anniversary thereof
(unless he is terminated for cause or he terminates his
employment without good reason). On the last day of
Mr. Kilts one year post-merger employment,
Procter & Gamble will also grant Mr. Kilts 150,000
restricted shares of Procter & Gamble common stock
(unless he is terminated for cause or he terminates his
employment without good reason), which shall vest at the end of
his three-year non-competition period if Mr. Kilts has
complied with the terms of his non-competition covenant. During
his one-year term of employment, Mr. Kilts will be entitled
to receive his then current annual base salary ($1,545,000 as of
April 1, 2005), and an annual bonus that will be determined
based on the same performance criteria that applies to the
determination of the annual bonus of Procter &
Gambles chief executive officer during the same period.
Mr. Kilts will also be entitled to participate on a pro
rata basis for his one-year employment period in
Procter & Gambles three-year long term incentive
plan on the same terms as Procter & Gambles chief
executive officer, which will provide Mr. Kilts with a
target payout of two times his annual base salary, and all of
the other provisions of his employment agreement prior to
amendment will continue to apply, including the requirement that
he use corporate aircraft for travel and the company provided
housing in the Boston area.
I-59
Chapter One The Merger
Under the terms of the amended employment agreement,
Mr. Kilts will be paid the severance payments described
above immediately prior to consummation of the merger and
following the termination of his one year employment term with
Procter & Gamble he will receive the severance benefits
described above and will have the continued use of an office and
administrative support until age 65.
Employment Agreements with Other Executive Officers. Each
of Gillettes other executive officers, including Edward F.
DeGraan, Charles W. Cramb and Peter K. Hoffman, is a party to an
employment agreement (which are referred to as the change of
control agreements) that becomes effective upon a change of
control (as that term is defined in those change of control
agreements) and which supersedes any other employment agreement
to which they are parties. The consummation of the merger will
constitute a change of control.
The change of control agreements have a term of two years
following the change of control. Under the change of control
agreements, these executive officers are entitled to receive
severance benefits upon termination of their employment without
cause or by the executive officer for good
reason (as those terms are defined in the change of
control agreements).
Upon termination without cause or for good reason (including a
voluntary termination during the 30-day period following the
first anniversary of a change in control), each executive
officer will be entitled to severance payments and severance
benefits substantially the same as those described above for
Mr. Kilts.
For purposes of the change of control agreements, good
reason also includes:
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the assignment to the executive officer of any duties
inconsistent with the executive officers position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as they existed
immediately prior to the change of control; and |
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relocation of the executive officer to an office more than
35 miles from where the executive officers office was
located immediately prior to the change of control. |
It is expected that the merger will result in each of the
executive officers of Gillette being entitled to terminate such
executive officers employment for good reason
with the resulting entitlement of such executive officer to his
severance payments and severance benefits.
Non-employee Director Compensation. Under the Gillette
Deferred Compensation Plan for Outside Directors, one-half of
each non-employee directors annual retainer is deferred
into Gillette stock units, and each non-employee director also
has the opportunity to defer payment of any or all of the
remaining portion of the retainer into a cash account or a
Gillette stock unit account. The directors balances under
this plan are 100% vested. Following a change of control (which
the merger will constitute), all amounts deferred under the
plan, including those deferred stock units into which benefits
under a previously terminated director retirement plan were
converted, will be paid in cash to the participants, either in a
lump sum or in installments, as previously elected by the
participant.
Ownership of Common Stock; Stock Options
Security Ownership of Procter & Gamble Executive
Officers and Directors. As of
[ ],
2005, directors and executive officers of Procter &
Gamble beneficially owned an aggregate of
[ ] shares
of Procter & Gamble common stock,
[ ] shares
of Series A ESOP Convertible Class A Preferred Stock,
and
[ ] shares
of Series B ESOP Convertible Class A Preferred Stock,
including options to purchase
[ ] shares
of Procter & Gamble common stock exercisable within
60 days.
Security Ownership of Gillette Executive Officers and
Directors. As of
[ ],
2005, directors and executive officers of Gillette beneficially
owned an aggregate of
[ ] shares
of Gillette common stock, including options to purchase
[ ] shares
of Gillette common stock exercisable within 60 days.
Directors and Executive Officers
For biographical information regarding Procter &
Gambles directors and executive officers, information
concerning the compensation paid to the chief executive officer
and the other four most highly compensated executive officers of
Procter & Gamble for the fiscal year ended
June 30, 2004, as well as any information regarding certain
relationships and related transactions involving
Procter & Gambles
I-60
Chapter One The Merger
directors and executive officers for the fiscal year ended
June 30, 2004, see Procter & Gambles proxy
statement used in connection with its 2004 annual meeting of
shareholders.
For biographical information regarding Gillettes directors
and executive officers, information concerning the compensation
paid to the chief executive officer and the other four most
highly compensated executive officers of Gillette for the 2003
fiscal year as well as any information regarding certain
relationships and related transactions involving Gillettes
directors and executive officers for the 2003 fiscal year, see
Gillettes proxy statement used in connection with its 2004
annual meeting of shareholders.
Treatment of Gillette Stock Options
Each outstanding Gillette stock option will become vested and
fully exercisable immediately prior to the effective time of the
merger and option holders will have the opportunity to exercise
immediately prior to the effective time of the merger and
receive either (i) the merger consideration with respect to
the shares issuable as a result of such exercise (the
Merger Shares) or (ii) a cash payment equal to
the product of (a) the excess (if any) of the per share
value of the Merger Shares over the per share exercise price and
(b) the number of shares with respect to which such options
are exercised. Each Gillette stock option remaining outstanding
immediately prior to the effective time of the merger will be
converted at the effective time of the merger into an option to
acquire a number of shares of Procter & Gamble common
stock determined by multiplying the number of shares of Gillette
common stock subject to such Gillette stock option by the
exchange ratio, at a price per share equal to the per share
exercise price specified in such stock option divided by the
exchange ratio. The number of shares of Procter &
Gamble common stock underlying the new Procter & Gamble
option will equal the number of shares of Gillette common stock
to which the corresponding Gillette option was subject,
multiplied by the exchange ratio. The per share exercise price
of each new Procter & Gamble option will be equal to
the exercise price of the corresponding Gillette option divided
by the exchange ratio. Prior to the effective time, Gillette
will amend its stock option plans to provide, and each option
holder will enter into an agreement with Gillette agreeing to,
the following: (i) each actively-employed option holder
will be bound by a non-compete agreement prohibiting such
holders competing with any business conducted by Gillette
immediately prior to the effective time or any business of
Procter & Gamble or its affiliates in which the holder
was employed, and which otherwise parallels the terms and
conditions of the non-compete agreement contained in
Procter & Gambles stock option plan, and
(ii) a termination of employment for good
reason after the effective time will be treated for all
purposes under Gillettes stock option plans the same as
special separation or retirement (in the
case of a retirement-eligible holder) under Procter &
Gambles stock option plan. The dollar amount of
in-the-money options held by Gillettes executive officers
and directors that will become vested upon such adoption or
completion, as the case may be, is approximately
$[ ],
based on a closing sale price of Gillette common stock on the
New York Stock Exchange on
[ ],
2005.
Indemnification; Directors and Officers
Insurance
Procter & Gamble is obligated, for six years after the
merger, to maintain in effect Gillettes current
directors and officers liability insurance covering
acts or omissions occurring prior to the completion of the
merger, provided that the aggregate annual premium for such
coverage does not exceed 250% of the current annual premium (in
which case Procter & Gamble would be required to
maintain the maximum coverage available at an annual premium
equal to 250% of the current annual premium).
Procter & Gamble is obligated to indemnify and hold
harmless, and provide advancement of expenses to, each person
who is or has been an officer, director or employee of Gillette
or any of its subsidiaries with respect to acts or omissions by
them in all of their capacities as officers, directors or
employees of Gillette or any of its subsidiaries or taken at the
request of Gillette or any of its subsidiaries at any time on or
prior to the merger, including for acts and omissions occurring
in connection with the approval of the merger and the merger
agreement. Procter & Gamble will also cause the
surviving corporation in the merger to maintain in its
certificate of incorporation or bylaws the current provisions in
Gillettes certificate of incorporation and bylaws
regarding indemnification of officers, directors and employees.
I-61
Chapter One The Merger
THE MERGER AGREEMENT
The following is a summary of the material terms of the
merger agreement. This summary does not purport to describe all
the terms of the merger agreement and is qualified by reference
to the complete merger agreement which is attached as
Annex A to this joint proxy statement/ prospectus and
incorporated by reference. All shareholders of
Procter & Gamble and Gillette are urged to read the
merger agreement carefully and in its entirety.
General
Under the merger agreement, a wholly owned subsidiary of
Procter & Gamble will merge with and into Gillette,
with Gillette continuing as the surviving corporation. As a
result of the merger, Gillette will become a wholly owned
subsidiary of Procter & Gamble.
Closing Matters
Closing. Unless the parties agree otherwise, the closing
of the merger will take place on the first business day after
all closing conditions have been satisfied or waived, unless the
merger agreement has been terminated or another time or date is
agreed to in writing by the parties. See
Conditions below for a more complete
description of the conditions that must be satisfied or waived
prior to closing.
Effective Time. As soon as practicable after the
satisfaction or waiver of the conditions to the merger,
Procter & Gamble and Gillette will file a certificate
of merger with the Delaware Secretary of State in accordance
with the relevant provisions of the Delaware General Corporation
Law. The merger will become effective when the certificate of
merger is filed or at such later time as Procter &
Gamble and Gillette agree and specify in the certificate of
merger.
Consideration to Be Received in the Merger; Treatment of
Stock Options
The merger agreement provides that, at the effective time of the
merger:
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each share of Gillette common stock issued and outstanding
immediately prior to the effective time of the merger, together
with the associated rights issued under the Gillette rights
agreement, but excluding shares of Gillette common stock owned
by Procter & Gamble, Gillette or any of their
respective subsidiaries (other than those shares held by
Gillette in a fiduciary or representative capacity), will be
converted into 0.975 shares of Procter & Gamble
common stock; |
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each outstanding and unexercised option or right to purchase
shares of Gillette common stock granted under the Gillette stock
option plans will accelerate immediately prior to the effective
time of the merger and option holders will have the opportunity
to exercise and receive either (i) the merger consideration
with respect to the shares issuable as a result of such exercise
(the Merger Shares) or (ii) a cash payment
equal to the product of (a) the excess (if any) of the per
share value of the Merger Shares over the per share exercise
price and (b) the number of shares with respect to which
such options are exercised; and |
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each Gillette stock option remaining outstanding at the
effective time of the merger will be converted into an option to
acquire on the same terms and conditions previously applicable,
shares of Procter & Gamble common stock. The number of
shares of Procter & Gamble common stock underlying the
new Procter & Gamble option will equal the number of
shares of Gillette common stock for which the corresponding
Gillette option was exercisable, multiplied by 0.975 (rounded,
if necessary, to the nearest whole share). The per share
exercise price of each new Procter & Gamble option will
equal the exercise price of the corresponding Gillette option
divided by 0.975. Prior to the effective time, Gillette will
amend its stock option plans to provide, and each option holder
will enter into an agreement with Gillette agreeing to, the
following: (i) each option holder will be bound by a
non-compete agreement prohibiting such holders competing
with any business conducted by Gillette immediately prior to the
effective time or any business of Procter & Gamble |
I-62
Chapter One The Merger
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or its affiliates in which the holder was employed, and which
otherwise parallels the terms and conditions of the non-compete
agreement contained in Procter & Gambles stock
option plan, and (ii) a termination of employment for
good reason after the effective time will be treated
for all purposes under Gillettes stock option plans the
same as special separation or retirement
(in the case of a retirement-eligible holder) under
Procter & Gambles stock option plan. |
For a further discussion of the treatment of Gillette stock
options and other employee benefit plans under the merger
agreement, see Covenants Employee
Matters on page
and Interests of Certain Persons in the Merger on
page .
Exchange of Certificates in the Merger
Before the effective time of the merger, Procter &
Gamble will appoint an exchange agent to handle the exchange of
Gillette stock certificates for shares of Procter &
Gamble common stock (which shares will be in uncertificated
book-entry form unless a physical certificate is requested by
such holder) and the payment of cash for fractional shares.
Promptly after the effective time of the merger, the exchange
agent will send a letter of transmittal, which is to be used to
exchange Gillette stock certificates for shares of
Procter & Gamble common stock, to each former Gillette
shareholder who holds one or more stock certificates. The letter
of transmittal will contain instructions explaining the
procedure for surrendering Gillette stock certificates. You
should not return certificates with the enclosed proxy card.
Gillette shareholders who surrender their stock certificates,
together with a properly completed letter of transmittal, will
receive shares of Procter & Gamble common stock (which
shares will be in uncertificated book-entry form unless a
physical certificate is requested by such holder) into which the
shares of Gillette common stock were converted in the merger.
After the effective date of the merger, each certificate that
previously represented shares of Gillette common stock will only
represent the right to receive the shares of Procter &
Gamble common stock (and cash in lieu of fractions thereof) into
which those shares of Gillette common stock have been converted.
After the completion of the merger, Procter & Gamble
will not pay dividends with a record date after the effective
time to any holder of any Gillette stock certificates until the
holder surrenders the Gillette stock certificates. However, once
those certificates are surrendered, Procter & Gamble
will pay to the holder, without interest, any dividends that
have been declared after the effective date of the merger on the
shares into which those Gillette shares have been converted.
Procter & Gamble shareholders do not need to exchange
their stock certificates.
Fractional Shares
No fractional shares of Procter & Gamble common stock
will be issued in the merger. Instead, the exchange agent will
pay each of those shareholders who would have otherwise been
entitled to a fractional share of Procter & Gamble
common stock an amount in cash determined by multiplying the
fractional share interest by the closing price for a share of
Procter & Gamble common stock on the New York Stock
Exchange Composite Transaction Tape on the date of the effective
time of the merger.
Listing of Procter & Gamble Stock
Procter & Gamble has agreed to use its commercially
reasonable efforts to cause the shares of Procter &
Gamble common stock to be issued in the merger and the shares of
Procter & Gamble common stock to be reserved for
issuance upon exercise of the Gillette stock options to be
approved for listing on the New York Stock Exchange, subject to
official notice of issuance, prior to the effective time of the
merger. Procter & Gambles symbol PG
will be used for such shares, assuming the listing application
is approved. Approval for listing on the New York Stock Exchange
of the shares of Procter & Gamble common stock issuable
to the Gillette shareholders in the merger, subject only to
official notice of issuance, is a condition to the obligations
of Procter & Gamble and Gillette to complete the merger.
I-63
Chapter One The Merger
Covenants
Procter & Gamble and Gillette have each undertaken
certain covenants in the merger agreement concerning the conduct
of their respective businesses between the date the merger
agreement was signed and the completion of the merger. The
following summarizes the more significant of these covenants:
No Solicitation. Gillette has agreed that Gillette, and
any of its subsidiaries, officers or directors, will not, and
will use commercially reasonable efforts to ensure that their
respective employees, agents or representatives do not:
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initiate, solicit, encourage or knowingly facilitate, including
by way of furnishing information, any inquiries or the making of
any proposal or offer with respect to a third party
acquisition proposal of the type described below; |
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have any discussion with or provide any confidential information
or data to any person relating to an acquisition proposal; |
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engage in negotiations concerning an acquisition proposal; |
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knowingly facilitate any effort or attempt to make or implement
an acquisition proposal; or |
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subject to Gillettes right to terminate the merger
agreement under certain circumstances described in
Termination of Merger Agreement if
Gillette receives a superior proposal of the type described
below, accept an acquisition proposal. |
However, Gillette is permitted to take and disclose to its
shareholders its position with respect to any acquisition
proposal as may be required under the federal securities laws.
In addition, Gillette is permitted to engage in discussions and
negotiations with, and provide information to, any person in
response to an unsolicited acquisition proposal, if:
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its meeting of shareholders to vote on the adoption of the
merger agreement has not occurred; |
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its board of directors concludes in good faith (i) after
consultation with its independent financial advisor, that there
is a reasonable likelihood that the acquisition proposal could
result in a superior proposal of the type described
below and (ii) after consultation with its outside legal
counsel, that failure to take such action could be reasonably
expected to result in a breach of its fiduciary duties; |
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prior to providing any information or data to any person in
connection with an acquisition proposal, the proposing party
first signs a confidentiality agreement customary for such
transactions; and |
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Gillette notifies and keeps Procter & Gamble informed
of the status and terms of the acquisition proposal and any
discussions or negotiations relating to the acquisition proposal. |
An acquisition proposal for Gillette is any
proposal or offer with respect to:
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a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution
or similar transaction involving Gillette; |
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any purchase or sale of the consolidated assets of Gillette and
its subsidiaries, taken as a whole, having an aggregate value
equal to 10% or more of the market capitalization of
Gillette; or |
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any purchase or sale of, or tender offer or exchange offer for,
10% or more of the equity securities of Gillette. |
A superior proposal for Gillette, is a bona
fide written proposal which:
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is made by a third party in respect of a transaction or series
of related transactions that if consummated would result in such
third party acquiring, directly or indirectly, all or
substantially all of Gillettes voting securities or all or
substantially all of the assets of Gillette and its subsidiaries; |
I-64
Chapter One The Merger
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is not subject to any conditions to either partys
obligation to consummate the transaction (other than conditions
that are in the aggregate as likely to result in the
consummation of such transaction as the aggregate of the
conditions contained in the merger agreement); and |
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Gillettes board of directors determines in its good faith
judgment, after consulting with its financial advisor of
nationally recognized reputation, is more favorable from a
financial point of view to its shareholders than the merger with
Procter & Gamble, taking into account any changes to
the terms of the merger agreement offered by Procter &
Gamble in response to the superior proposal or otherwise. |
Board of Directors Covenant to Recommend. Gillette
has agreed that its board of directors will recommend adoption
of the merger agreement to the Gillette shareholders. Similarly,
Procter & Gamble has agreed that its board of directors
will recommend adoption of the merger agreement and issuance of
Procter & Gamble common stock in the merger to its
shareholders.
However, Gillettes board is permitted to withdraw or to
modify or to qualify in a manner adverse to Procter &
Gamble this recommendation, before the Gillette special meeting
if either:
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following receipt of any acquisition proposal with respect to
which its board of directors believes in good faith, after
consultation with its independent financial advisor, there is a
reasonable likelihood that such acquisition proposal could
result in a superior proposal; or |
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if a material adverse effect has occurred with respect to
Procter & Gamble |
and, in either case, Gillettes board of directors
determines in good faith that the failure to effect a change in
its recommendation could be reasonably expected to result in a
breach of its fiduciary duties under applicable law.
Similarly, Procter & Gambles board is permitted
to withdraw or to modify or to qualify in a manner adverse to
Gillette its recommendation, before its meeting if a material
adverse effect has occurred with respect to Gillette.
Even if the board of either company changes, withholds or
modifies its recommendation of the merger, that company is still
required to present the merger and related proposals at the
special meeting of its shareholders for consideration, unless
the merger agreement is otherwise terminated. See
Termination of Merger Agreement on
page for a discussion
of each partys ability to terminate the merger agreement.
Operations of Procter & Gamble and Gillette Pending
Closing. Procter & Gamble and Gillette have each
undertaken a separate covenant that places restrictions on their
and their respective subsidiaries until either the effective
time of the merger or the termination of the merger agreement.
In general, the companies and their respective subsidiaries are
each required to conduct their respective business in the
ordinary course in all material respects substantially in the
same manner as conducted prior to the date of the merger
agreement and to use reasonable efforts to preserve intact their
present lines of business and relationships with third parties.
Each company has agreed to restrictions that, except as required
by law, prohibit them and their respective subsidiaries from:
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declaring or paying dividends in amounts inconsistent with past
practice; |
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amending their respective governing documents (other than, in
the case of Procter & Gamble, amendments related to the
composition or structure of its board of directors or committees
thereof or other governance-related matters); |
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making acquisitions of, or investments in, other entities beyond
specified amounts; or |
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changing their respective accounting methods (other than to
comply with changes in accounting principles) or fiscal year. |
I-65
Chapter One The Merger
In addition, subject to certain exceptions, Gillette has agreed
to additional restrictions that prohibit it from:
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making changes in its share capital, including among other
things, stock splits, combinations or reclassifications, except
for any transaction by a wholly owned subsidiary of Gillette
which remains a wholly owned subsidiary after the completion of
the transaction; |
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repurchasing or redeeming its capital stock, except (i) for
any transaction by a wholly owned subsidiary of Gillette which
remains a wholly owned subsidiary after the completion of the
transaction, (ii) in connection with agreed-upon
Section 965 dividend plans, (iii) the redemption or
exchange of rights in accordance with the Gillette rights
agreement and (iv) in the ordinary course of business in
connection with its benefit plans; |
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issuing, delivering or selling any shares of its capital stock
or other equity interests, other than, among others, in
connection with Gillettes benefit plans or in connection
with the exercise of options or other stock awards or stock
option agreements and other than issuances by a wholly owned
subsidiary of Gillette of capital stock to the subsidiarys
parent or another wholly owned subsidiary of Gillette; |
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other than certain permitted expenditures, (i) entering
into or terminating a material agreement (except for licensing
agreements entered into for the purpose of settling or avoiding
an action or claim against Gillette), (ii) entering into
any new line of business, (iii) entering into a capital
expenditure that is not otherwise permitted or
(iv) entering into any contract or arrangement for the sale
of inventories or the furnishing of services by Gillette which
may give rise to commitments extending beyond twelve months
unless it can be terminated with less than 60 days
notice and results in no material detriment; |
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disposing of any brands or lines of business, except in
connection with internal reorganizations, as previously
disclosed in prior SEC reports or, as required by or in
conformance with a law or regulation in order to permit or
facilitate the transaction; |
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making loans, advances, capital contributions or investments in
any other entity pursuant to a legal obligation not existing on
January 27, 2005, other than in the ordinary course and
consistent with past practice, and other than loans, advances,
capital contributions or investments by Gillette to its
subsidiaries or from subsidiaries of Gillette to Gillette; |
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increasing the compensation of or entering into any new
agreements with any officers, directors or employees or issuing
any additional stock options or adopting any additional benefit
plans, other than in the ordinary course; |
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making any material tax election, settling or compromising any
material tax liability or changing its fiscal year, except with
the written permission of Procter & Gamble; |
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entering into any agreements containing restrictions that would
limit or restrict Gillette or its subsidiaries, or after the
effective time, Procter & Gamble, from competing or
entering into any line of business or conducting business in any
geographic area; and |
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settling or compromising any material action, suit or claim
without consultation with Procter & Gamble, and in the
case of litigation arising after the date of the merger
agreement, settling or compromising any material action, suit or
claim without the consent of Procter & Gamble. |
Commercially Reasonable Efforts Covenant.
Procter & Gamble and Gillette have agreed to use their
commercially reasonable efforts to take all actions and do all
things advisable or necessary under the merger agreement and
applicable laws to complete the merger and the other
transactions contemplated by the merger agreement.
Commercially reasonable efforts include taking actions necessary
to obtain regulatory approval, contesting and resisting an
action or proceeding that would otherwise restrict the merger,
or having
I-66
Chapter One The Merger
vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order that would otherwise restrict the
merger, including:
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(1) |
Procter & Gamble selling, holding separate, licensing
or disposing of assets, in response to the requirements imposed
by antitrust authorities; and |
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Gillette, at the direction of Procter & Gamble,
selling, holding separate, licensing or disposing of assets, in
response to the requirements imposed by antitrust authorities. |
However, neither party will be required for any reason to sell,
hold separate or otherwise dispose of assets in accordance with
(1) or (2) above, to the extent that the assets to be
sold, held separate, licensed or otherwise disposed of
generated, in calendar year 2004 (based on the internal
financial records of Procter & Gamble or Gillette, as
the case may be) more than $1.9 billion in net sales.
Employee Matters. In the merger agreement, the companies
have agreed that, following the merger, Procter &
Gamble will:
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maintain a substantially comparable aggregate level of benefits
and compensation (excluding equity-based awards) for employees
of Gillette and its subsidiaries (other than those subject to
collective bargaining agreements) until the second anniversary
of the effective time of the merger; |
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maintain retiree welfare benefits for existing retirees of
Gillette and its subsidiaries and employees of Gillette and its
subsidiaries who are vested in such benefits immediately prior
to the effective time of the merger and who retire prior to the
second anniversary thereof that are no less favorable in the
aggregate to those provided to such persons prior to the
effective time, but only to the extent that Procter &
Gamble continues to maintain its own retiree welfare benefits;
provided that Procter & Gamble may reduce or terminate
such retiree welfare benefits to the extent it reduces or
terminates retiree welfare benefits for similarly situated
employees of Procter & Gamble; |
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assume and honor all the terms of the benefit plans of Gillette
and its subsidiaries and pay the benefits provided under such
plans (and recognize that the consummation of the merger will
constitute a change in control for purposes of such
plans that have modifications to benefits in the event of a
change in control); and |
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provide credit for service with Gillette and its subsidiaries
under Procter & Gamble plans in which employees of
Gillette and its subsidiaries (other than employees subject to
collective bargaining agreements whose service will be
determined under such collective bargaining agreements) may
participate to the same extent as their service was counted
under similar Gillette plans, except where such credit would
result in a duplication of benefit accrual. |
Section 965 Dividend. Gillette has agreed to use its
best efforts to timely pay dividends from its foreign
subsidiaries that qualify for the temporary dividends received
deduction under section 965 of the Internal Revenue Code
and to maximize, to the extent commercially practicable, the
amount paid. Gillette and Procter & Gamble will use
their best efforts to develop a mutually agreeable plan that
provides for the method and amount in which such dividends will
be paid and the use for the dividends received. If a plan cannot
be mutually agreed to, Gillette will use its best efforts to
implement a plan developed by Procter & Gamble once
certain conditions are satisfied, or if such conditions are not
satisfied Gillette will implement its own dividend plan upon
receipt of Procter & Gambles consent.
Dissenters Rights. Procter & Gamble has
agreed to give Gillette prompt notice of any demands received
for the fair cash value of Procter & Gamble common
stock. Procter & Gamble has also agreed that it will
(i) not, without the prior written consent of Gillette,
waive any requirement under or compliance with the laws of the
State of Ohio applicable to any shareholder demanding the fair
cash value of shares and (ii) require each dissenting
shareholder holding shares in certificated form to deliver such
shares to Procter & Gamble for endorsement of a legend
to the effect that a demand for the fair cash value of such
shares has been made.
I-67
Chapter One The Merger
Expenses. The companies have each agreed to pay their own
costs and expenses incurred in connection with the merger and
the merger agreement. Procter & Gamble and Gillette,
however, will each pay 50% of any expenses incurred in
connection with the filing, printing and mailing of this joint
proxy statement/ prospectus and will each pay 50% of filing fees
payable pursuant to the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the
HSR Act).
Other Covenants. The merger agreement contains certain
other covenants, including covenants relating to cooperation
between Procter & Gamble and Gillette in the
preparation of this joint proxy statement/ prospectus and other
governmental filings, public announcements, and certain tax
matters.
Representations and Warranties
The merger agreement contains substantially reciprocal
representations and warranties made by each company to the
other. The representations and warranties relate to:
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corporate existence, qualification to conduct business and
corporate standing and power; |
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capital structure; |
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corporate authority to enter into, and carry out the obligations
under, the merger agreement and enforceability of the merger
agreement; |
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absence of a breach of the certificate of incorporation, bylaws,
law or material agreements as a result of the merger; |
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filings with the SEC and financial statements; |
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information supplied for use in this joint proxy statement/
prospectus; |
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board of directors approval; |
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required shareholder vote; |
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litigation; |
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compliance with laws; |
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absence of certain changes or events; |
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payment of fees to finders or brokers in connection with the
merger agreement; |
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opinions of financial advisors; |
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tax matters; |
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employee benefit plans; and |
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material contracts. |
Representations and warranties made solely by Gillette relate to
labor matters, non-competition agreements, inapplicability of
Gillettes rights agreement to the merger, environmental
matters, intellectual property matters, compliance with the
Foreign Corrupt Practices Act and international trade sanctions,
inapplicability of anti-takeover statutes, product liability and
recalls and disclosure.
The merger agreement also contains certain representations and
warranties of Procter & Gamble with respect to its
wholly owned merger subsidiary, including organization,
corporate authorization, absence of a breach of the certificate
of incorporation and the bylaws, and no prior business
activities of the merger subsidiary.
I-68
Chapter One The Merger
Conditions
The companies respective obligations to complete the
merger are subject to the satisfaction or, to the extent legally
permissible, the waiver of the following conditions:
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the adoption of the merger agreement by the Gillette
shareholders, and the adoption of the merger agreement and
approval of the issuance of Procter & Gamble common
stock by the Procter & Gamble shareholders; |
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the absence of any law, order or injunction prohibiting
completion of the merger in the United States or European Union; |
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the absence of any pending action or proceeding by any
governmental authority of competent jurisdiction in the United
States or European Union seeking to make the merger illegal or
otherwise prohibiting consummation of the merger; |
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Gillettes rights agreement shall have been amended so that
no event shall have occurred which would trigger a distribution; |
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the expiration or termination of the applicable waiting periods
under the HSR Act; |
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the approval of the merger by the European Commission; |
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the approval for listing by the New York Stock Exchange of the
Procter & Gamble common stock to be issued in the
merger, subject to official notice of issuance; and |
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the SEC having declared effective the Procter & Gamble
registration statement, of which this joint proxy statement/
prospectus forms a part. |
In addition, individually, the companies respective
obligations to effect the merger are subject to the satisfaction
or, to the extent legally permissible, the waiver of the
following additional conditions:
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the representations and warranties of the other company
contained in the merger agreement which are qualified as to
material adverse effect, being true and correct as of the date
of the agreement and as of the closing date of the merger,
except to the extent that such representation or warranty speaks
as of another date and except as such representations and
warranties are affected by actions explicitly permitted by the
merger agreement; |
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the representations and warranties of the other company which
are not qualified as to material adverse effect being true and
correct except where the failure to be true and correct,
individually or in the aggregate, would not have a material
adverse effect on the other company, as of the date of the
merger agreement and as of the closing date of the merger as if
they were made on that date, except to the extent that such
representation or warranty speaks as of another date; |
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each party has performed or complied with all agreements or
covenants required to be performed by it under the merger
agreement which are qualified as to material adverse effect and
each party has performed or complied in all material respects
with all other material agreements or covenants required to be
performed by it under the merger agreement, in each case, at or
prior to the closing date; |
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the receipt of an opinion of each companys counsel to the
effect that the merger will qualify as a
reorganization under the Internal Revenue
Code; and |
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the other party having not suffered from any change that would
reasonably be expected to have a material adverse effect on such
party. |
I-69
Chapter One The Merger
It is also a condition of Procter & Gambles
obligations to effect the merger that the following additional
conditions are satisfied or, to the extent legally permissible,
waived:
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Gillettes rights plan having been amended so that no event
occurs which would trigger a distribution under Gillettes
rights agreement; |
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the receipt of all other governmental and regulatory consents,
approvals and authorizations necessary for the merger unless not
obtaining those consents or approvals would not reasonably be
expected to have a material adverse effect on the combined
company, taken as a whole; and |
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holders of not more than 5% of the outstanding common stock of
Procter & Gamble having exercised their
dissenters rights under the Ohio General Corporation Law. |
Termination of Merger Agreement
Right to Terminate. The merger agreement may be
terminated at any time prior to the effective time in any of the
following ways:
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by mutual written consent. |
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by either company: |
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if the merger has not been completed by November 30, 2005
or, if the conditions to closing relating to antitrust or other
governmental approvals of the merger, have not been satisfied,
but all other conditions to closing are satisfied or are capable
of being satisfied, this date is automatically extended to
February 28, 2006; except that a party may not terminate
the merger agreement if the cause of the merger not being
completed is that partys failure to fulfill its
obligations under the merger agreement; |
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if a governmental authority or a court in the United States or
European Union permanently orders or prohibits the completion of
the merger or a governmental authority in the United States or
European Union fails to grant any necessary approval of the
merger and such decisions have become final and non-appealable,
except that a party may not terminate the merger agreement if
the cause of the prohibition or failure to obtain approval is a
result of that partys failure to fulfill its obligations
under the provision of the merger agreement which, among other
requirements, requires each party to use its commercially
reasonable efforts to obtain government approvals for the
completion of the merger and requires each party to divest
certain assets in response to requirements imposed by antitrust
authorities; or |
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if Procter & Gambles shareholders fail to adopt
the merger agreement and approve the issuance of
Procter & Gamble common stock in the merger or
Gillettes shareholders fail to adopt the merger agreement. |
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if Gillettes board of directors either changes its
recommendation in a manner adverse to Procter & Gamble,
or fails to call the Gillette special meeting to vote on the
merger in the manner contemplated by the merger
agreement; or |
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if Gillette has breached in any material respect any of its
representations or warranties, or has failed to perform in any
material respect any of its covenants or obligations under the
merger agreement and such breach: |
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would result in the failure of certain closing conditions to the
merger being satisfied; and |
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is incapable of being cured or remains uncured at
November 30, 2005 (or February 28, 2006, if the
termination date is automatically extended). |
I-70
Chapter One The Merger
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if Procter & Gambles board of directors changes
its recommendation in a manner adverse to Gillette or fails to
call the Procter & Gamble special meeting to vote on
the merger in the manner contemplated by the merger agreement; |
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if Procter & Gamble has breached in any material
respect any of its representations or warranties, or has failed
to perform in any material respect any of its covenants or
obligations under the merger agreement and such breach: |
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would result in the failure of certain closing conditions to the
merger being satisfied; and |
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is incapable of being cured or remains uncured at
November 30, 2005 (or February 28, 2006, if the
termination date is automatically extended); or |
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if Gillettes board of directors authorizes Gillette to
enter into a written agreement concerning a transaction that
Gillettes board of directors has determined in accordance
with the merger agreement is a superior proposal, except that
Gillette cannot terminate the merger agreement for this reason
unless (1) Gillette provides Procter & Gamble with
notice of the existence and terms of the superior proposal,
including the identity of the person making the superior
proposal and a statement as to whether Gillette intends to enter
into a definitive agreement for a business combination,
(2) Procter & Gamble, within four business days of
receiving such notice from Gillette, does not make an offer that
the board of directors of Gillette determines is at least as
favorable to the Gillette shareholders as the superior proposal
Gillette received from the third party and (3) Gillette
pays Procter & Gamble the fee described in
Termination Fee Payable by Gillette at or prior to
such termination. |
Termination Fee Payable by Gillette. Gillette has agreed
to pay Procter & Gamble a termination fee of
$1.92 billion (within one business day after the earlier of
the date Gillette enters into a definitive agreement with
respect to, or consummates, a business combination), if the
merger agreement is terminated under one of the following
circumstances:
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the merger agreement is (1) terminated by
Procter & Gamble because the board of directors of
Gillette withdraws or changes its recommendation in a manner
adverse to Procter & Gamble or for any reason Gillette
fails to call its shareholders meeting as contemplated by
the merger agreement (but only if, on or before the date the
agreement is terminated, there was an offer or proposal for, or
announcement with respect to, a business combination
involving Gillette) and (2) within twelve months of the
termination, Gillette enters into a definitive agreement or
completes a transaction with respect to a business combination
with a third party; |
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the merger agreement is (1) terminated by
Procter & Gamble or Gillette because Gillettes
shareholders failed to adopt the merger agreement (but only if,
prior to the date of the Gillette special meeting there was an
offer or proposal for, or any public announcement with respect
to, a business combination involving Gillette) and
(2) within twelve months of the termination, Gillette
enters into a definitive agreement or completes a transaction
with respect to a business combination with a third
party; or |
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the merger agreement is (1) terminated by
Procter & Gamble or Gillette because the merger has not
been completed by November 30, 2005 (or February 28,
2006, if the termination date is automatically extended), and at
the time of termination Gillette has not yet obtained its
shareholder approval and there has been an offer or proposal
for, or announcement with respect to, a business combination
involving Gillette and (2) within twelve months of the
termination, Gillette enters into a definitive agreement or
completes a transaction with respect to a business combination
with a third party. |
Gillette also has agreed to pay Procter & Gamble a
termination fee of $1.92 billion (at or prior to such
termination), if Gillette terminates the merger agreement
because Gillettes board of directors has
I-71
Chapter One The Merger
authorized Gillette to enter into a written agreement for a
superior proposal and Procter & Gamble has not, within
four business days of notice from Gillette, made an offer that
the board of directors of Gillette determines is at least as
favorable as the superior proposal Gillette has received from a
third party.
A business combination for Gillette is:
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(1) |
a merger, reorganization, consolidation, share exchange,
business combination, recapitalization, liquidation, dissolution
or similar transaction involving Gillette as a result of which
either: |
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Gillettes shareholders prior to the transaction in the
aggregate cease to own at least 50% of the voting securities of
the entity surviving or resulting from the transaction; |
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Any person beneficially owns at least 35% of the voting
securities of the ultimate parent entity of the entity surviving
or resulting from the transaction; or |
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The individuals comprising the board of directors of Gillette
prior to the transaction do not constitute a majority of the
board of directors of the ultimate parent entity of the entity
surviving or resulting from the transaction; |
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(2) |
a sale, lease, exchange, transfer or other disposition of at
least 50% of the assets of Gillette; or |
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(3) |
the acquisition by a person of beneficial ownership of 35% or
more of the common stock of Gillette (other than as described in
(1) above). |
Obligations in Event of Termination. In the event of
termination as provided for above, the merger agreement will
become void and of no further force and effect (except with
respect to certain designated sections in the merger agreement)
and there will be no liability on behalf of Procter &
Gamble or Gillette, except for liabilities arising from a
willful breach of the merger agreement.
Amendments, Extensions and Waivers
The merger agreement may be amended by the parties at any time
before or after the shareholder meetings, except that any
amendment after a shareholders meeting, which requires
approval by shareholders, may not be made without such approval.
I-72
Chapter Two Selected Financial Data
CHAPTER TWO:
SELECTED FINANCIAL DATA
PROCTER & GAMBLE AND GILLETTE UNAUDITED PRO FORMA
CONDENSED
COMBINED FINANCIAL STATEMENT
The Unaudited Pro Forma Condensed Combined Statements of
Earnings combine the historical consolidated statements of
earnings of Procter & Gamble and Gillette, giving
effect to the merger as if it had occurred on July 1, 2003.
The Unaudited Pro Forma Condensed Combined Balance Sheet
combines the historical consolidated balance sheet of
Procter & Gamble and the historical consolidated
balance sheet of Gillette, giving effect to the merger as if it
had been consummated on December 31, 2004. You should read
this information in conjunction with the:
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accompanying notes to the Unaudited Pro Forma Condensed Combined
Financial Statements; |
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separate unaudited historical financial statements of
Procter & Gamble as of and for the three- and six-month
periods ended December 31, 2004, included in the
Procter & Gamble quarterly report on Form 10-Q for
the three months ended December 31, 2004, as conformed to
present the reclassification of certain investments from cash
and cash equivalents to investment securities as contained in
the Procter & Gamble Form 8-K filed March 14,
2005, which is incorporated by reference into this document; |
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separate historical financial statements of Procter &
Gamble as of and for the fiscal year ended June 30, 2004,
included in the Procter & Gamble annual report on
Form 10-K for the fiscal year ended June 30, 2004, as
conformed to organizational and segment measurement changes
contained in the Procter & Gamble Form 8-K filed
October 22, 2004, and as conformed to present the
reclassification of certain investments from cash and cash
equivalents to investment securities as contained in the
Procter & Gamble Form 8-K filed March 14,
2005, which is incorporated by reference into this
document; and |
|
|
|
separate historical financial statements of Gillette as of and
for the year ended December 31, 2004, included in the
Gillette annual report on Form 10-K for the year ended
December 31, 2004, which is incorporated by reference into
this document. |
The unaudited pro forma condensed combined financial information
is provided for informational purposes only. The pro forma
information is not necessarily indicative of what the
companies financial position or results of operations
actually would have been had the merger been completed at the
dates indicated. In addition, the unaudited pro forma condensed
combined financial information does not purport to project the
future financial position or operating results of the combined
company.
The unaudited pro forma condensed combined financial information
was prepared using the purchase method of accounting with
Procter & Gamble treated as the acquirer. Accordingly,
we have adjusted the historical consolidated financial
information to give effect to the impact of the consideration
issued in connection with the merger. In the Unaudited Pro Forma
Condensed Combined Balance Sheet, Procter &
Gambles cost to acquire Gillette has been allocated to the
assets acquired and liabilities assumed based upon
managements preliminary estimate of their respective fair
values as of the date of acquisition. Any differences between
the fair value of the consideration issued and the fair value of
the assets and liabilities acquired will be recorded as
goodwill. The amounts allocated to acquired assets and
liabilities in the Unaudited Pro Forma Condensed Combined
Financial Statements are based on managements preliminary
internal valuation estimates. Definitive allocations will be
performed and finalized based upon certain valuations and other
studies that will be performed by Procter & Gamble with
the services of outside valuation specialists after the closing
date of the merger. Accordingly, the purchase allocation pro
forma adjustments are preliminary and have been made solely for
the purpose of providing unaudited pro forma condensed combined
financial information and are subject to revision based on a
final determination of fair value after the closing of the
merger.
II-1
Chapter Two Selected Financial Data
The Unaudited Pro Forma Condensed Combined Statements of
Earnings also include certain purchase accounting adjustments,
including items expected to have a continuing impact on the
combined results, such as increased depreciation and
amortization expense on acquired tangible and intangible assets.
The Unaudited Pro Forma Condensed Combined Statements of
Earnings do not include the impacts of any revenue, cost or
other operating synergies that may result from the merger.
Procter & Gamble expects the transaction to generate
more than $1 billion of annual before tax cost synergies by
year three. Cost synergy opportunities in purchasing,
manufacturing and logistics will be achieved through increased
scale, improved asset utilization and coordinated procurement.
Cost synergies in selling, general and administrative will be
achieved through the elimination of the overlap between the two
companies, the delivery of key support functions by
Procter & Gambles global business services group
and the integration of Gillettes brands with minimal
additional staff in corporate, market development organizations
and global business service organizations. As a result,
Procter & Gamble anticipates a reduction of about 6,000
positions, representing roughly four percent of the combined
workforce of the two companies. Finally, Procter &
Gamble anticipates economies of scale in retail selling and
marketing, including media buying.
The Unaudited Pro Forma Condensed Combined Financial Statements
do not reflect the impact of financing, liquidity or other
balance sheet repositioning that may be undertaken in connection
with or subsequent to the merger. In connection with this
transaction, Procter & Gamble also announced a common
stock repurchase program pursuant to which it and/or one or more
of its subsidiaries plan to repurchase up to $18 billion to
$22 billion of its common stock over a period of
12-18 months. Procter & Gamble intends to finance
such share repurchases by issuing a combination of long-term and
short-term debt. Due to Procter & Gambles strong
long-and short-term credit ratings, Procter & Gamble
does not anticipate any significant issues in securing the
required financing. In addition, Procter & Gamble does
not anticipate any significant impacts on its overall liquidity
as a result of the merger or share repurchases program.
Based on Procter & Gambles review of
Gillettes summary of significant accounting policies
disclosed in Gillettes financial statements, the nature
and amount of any adjustments to the historical financial
statements of Gillette to conform their accounting policies to
those of Procter & Gamble are not expected to be
significant. Upon consummation of the merger, further review of
Gillettes accounting policies and financial statements may
result in required revisions to Gillettes policies and
classifications to conform to Procter & Gambles.
Conforming Year Ends
Procter & Gamble has a fiscal year end of June 30
whereas Gillette has a December 31 calendar year end. In
order to prepare the Unaudited Pro Forma Condensed Combined
Statements of Earnings for the year ended June 30, 2004 and
for the six months ended December 31, 2004, Gillettes
operating results were first conformed to Procter &
Gambles year-end. This was done utilizing Gillettes
historical financial statements as of and for the year ended
December 31, 2004, and their historical unaudited financial
statements as of and for the six-month periods ended
June 30, 2004 and 2003.
II-2
Chapter Two Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
EARNINGS
For the Year Ended June 30, 2004
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Procter & | |
|
|
|
Pro Forma | |
|
Pro Forma | |
|
|
Gamble(a) | |
|
Gillette(b) | |
|
Adjustments | |
|
Combined(b) | |
|
|
| |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
51,407 |
|
|
$ |
9,705 |
|
|
|
|
|
|
$ |
61,112 |
|
Cost of products sold
|
|
|
25,076 |
|
|
|
4,010 |
|
|
|
23 |
(c) |
|
|
29,109 |
|
Selling, general and administrative expense
|
|
|
16,504 |
|
|
|
3,411 |
|
|
|
202 |
(d) |
|
|
20,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
9,827 |
|
|
|
2,284 |
|
|
|
(225 |
) |
|
|
11,886 |
|
Interest expense, net
|
|
|
629 |
|
|
|
35 |
|
|
|
|
|
|
|
664 |
|
Other non-operating income (expense), net
|
|
|
152 |
|
|
|
(13 |
) |
|
|
|
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes
|
|
|
9,350 |
|
|
|
2,236 |
|
|
|
(225 |
) |
|
|
11,361 |
|
Income taxes
|
|
|
2,869 |
|
|
|
660 |
|
|
|
(69 |
)(e) |
|
|
3,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
$ |
6,481 |
|
|
$ |
1,576 |
|
|
$ |
(156 |
) |
|
$ |
7,901 |
|
BASIC NET EARNINGS PER COMMON SHARE
|
|
$ |
2.46 |
|
|
|
|
|
|
|
|
|
|
$ |
2.19 |
|
DILUTED NET EARNINGS PER COMMON SHARE
|
|
$ |
2.32 |
|
|
|
|
|
|
|
|
|
|
$ |
2.09 |
|
DIVIDENDS PER COMMON SHARE
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
$ |
0.93 |
|
Weighted Average Shares Outstanding (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,580 |
|
|
|
|
|
|
|
965 |
(f) |
|
|
3,545 |
|
Diluted
|
|
|
2,790 |
|
|
|
|
|
|
|
988 |
(f) |
|
|
3,778 |
|
II-3
Chapter Two Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
EARNINGS
For the Six Months Ended December 31, 2004
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Procter & | |
|
|
|
Pro Forma | |
|
Pro Forma | |
|
|
Gamble | |
|
Gillette(b) | |
|
Adjustments | |
|
Combined(b) | |
|
|
| |
|
| |
|
| |
|
| |
Net Sales
|
|
$ |
28,196 |
|
|
$ |
5,799 |
|
|
|
|
|
|
$ |
33,995 |
|
Cost of products sold
|
|
|
13,482 |
|
|
|
2,418 |
|
|
|
11 |
(g) |
|
|
15,911 |
|
Selling, general and administrative expense
|
|
|
8,774 |
|
|
|
2,082 |
|
|
|
101 |
(h) |
|
|
10,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
5,940 |
|
|
|
1,299 |
|
|
|
(112 |
) |
|
|
7,127 |
|
Interest expense, net
|
|
|
381 |
|
|
|
19 |
|
|
|
|
|
|
|
400 |
|
Other non-operating income (expense), net
|
|
|
237 |
|
|
|
(27 |
) |
|
|
|
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes
|
|
|
5,796 |
|
|
|
1,253 |
|
|
|
(112 |
) |
|
|
6,937 |
|
Income taxes
|
|
|
1,756 |
|
|
|
363 |
|
|
|
(34 |
)(e) |
|
|
2,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
$ |
4,040 |
|
|
$ |
890 |
|
|
$ |
(78 |
) |
|
$ |
4,852 |
|
BASIC NET EARNINGS PER COMMON SHARE
|
|
$ |
1.57 |
|
|
|
|
|
|
|
|
|
|
$ |
1.37 |
|
DILUTED NET EARNINGS PER COMMON SHARE
|
|
$ |
1.47 |
|
|
|
|
|
|
|
|
|
|
$ |
1.30 |
|
DIVIDENDS PER COMMON SHARE
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
$ |
0.50 |
|
Weighted Average Shares Outstanding (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,535 |
|
|
|
|
|
|
|
965 |
(f) |
|
|
3,500 |
|
Diluted
|
|
|
2,749 |
|
|
|
|
|
|
|
988 |
(f) |
|
|
3,737 |
|
II-4
Chapter Two Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF EARNINGS
|
|
(a) |
On September 2, 2003, Procter & Gamble acquired a
controlling interest in Wella AG (Wella). Procter &
Gambles operating results include Wella after the
acquisition date. |
|
(b) |
Certain reclassifications have been made to the historical
presentation of Gillette to conform to the presentation used in
the Unaudited Pro Forma Condensed Combined Balance Sheet and the
Unaudited Pro Forma Condensed Combined Statements of Earnings. |
|
(c) |
Represents a $55 increase in depreciation expense resulting from
the fair value adjustments to Gillettes property, plant
and equipment (see note (b2) to the Unaudited Pro Forma
Condensed Combined Balance Sheet), partially offset by a $32
reduction in cost of sales attributable to the impact of the
fair value adjustment to Gillettes pension and other
postretirement medical benefits obligations (see note (b6)
to the Unaudited Pro Forma Condensed Combined Balance Sheet). |
|
(d) |
Represents an increase in intangible asset amortization expense
of $250 resulting from the fair value adjustments to
Gillettes intangible assets (see note (b3) to the
Unaudited Pro Forma Condensed Combined Balance Sheet), partially
offset by a $48 reduction in selling, general and administrative
costs attributable to fair value adjustments to Gillettes
pension and other postretirement medical benefits obligations
(see note (b6) to the Unaudited Pro Forma Condensed
Combined Balance Sheet). |
|
|
The unaudited pro forma condensed combined financial statements
reflect a preliminary allocation to tangible assets,
liabilities, goodwill and other intangible assets. The final
purchase price allocation may result in a different allocation
for tangible and intangible assets than that presented in these
unaudited pro forma condensed combined financial statements. |
|
(e) |
Income tax impacts as a result of purchase accounting
adjustments are estimated at the Procter & Gamble
effective income tax rate for the periods presented, which
reflects our best estimate of Procter & Gamble
statutory income tax rates for all tax jurisdictions. |
|
(f) |
The pro forma combined per share amounts and weighted average
common shares reflect the combined weighted average of
Procter & Gamble common shares for each period
presented and the Gillette common shares, adjusted to reflect
the exchange ratio of 0.975 shares of Procter &
Gamble common stock for each share of Gillette common stock. |
|
(g) |
Represents a $27 increase in depreciation expense resulting from
the fair value adjustments to Gillettes property, plant
and equipment (see note (b2) to the Unaudited Pro Forma
Condensed Combined Balance Sheet), partially offset by a $16
reduction in cost of sales attributable to the impact of the
fair value adjustments to Gillettes pension and other
postretirement medical benefits obligations (see note (b6)
to the Unaudited Pro Forma Condensed Combined Balance Sheet). |
|
(h) |
Represents an increase in intangible asset amortization expense
of $125 resulting from the fair value adjustments to
Gillettes intangible assets (see note (b3) to the
Unaudited Pro Forma Condensed Combined Balance Sheet), partially
offset by a $24 reduction in selling, general and administrative
costs attributable to fair value adjustments to Gillettes
pension and other postretirement medical benefits obligations
(see note (b6) to the Unaudited Pro Forma Condensed
Combined Balance Sheet). |
II-5
Chapter Two Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 2004
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Procter & | |
|
|
|
Pro Forma | |
|
Pro Forma | |
|
|
Gamble(a) | |
|
Gillette(a) | |
|
Adjustments | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
6,401 |
|
|
$ |
219 |
|
|
|
|
|
|
$ |
6,620 |
|
Investment securities
|
|
|
1,769 |
|
|
|
847 |
|
|
|
|
|
|
|
2,616 |
|
Accounts receivable
|
|
|
4,689 |
|
|
|
835 |
|
|
|
|
|
|
|
5,524 |
|
Total inventories
|
|
|
5,176 |
|
|
|
1,291 |
|
|
|
58 |
(b1) |
|
|
6,525 |
|
Deferred income taxes
|
|
|
1,017 |
|
|
|
303 |
|
|
|
|
|
|
|
1,320 |
|
Prepaid expenses and other receivables
|
|
|
1,944 |
|
|
|
573 |
|
|
|
|
|
|
|
2,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
20,996 |
|
|
|
4,068 |
|
|
|
58 |
|
|
|
25,122 |
|
NET PROPERTY, PLANT AND EQUIPMENT
|
|
|
14,502 |
|
|
|
3,747 |
|
|
|
818 |
(b2) |
|
|
19,067 |
|
NET GOODWILL AND OTHER INTANGIBLE ASSETS
|
|
|
25,306 |
|
|
|
1,609 |
|
|
|
54,239 |
(b3) |
|
|
81,154 |
|
OTHER NON-CURRENT ASSETS
|
|
|
2,228 |
|
|
|
1,307 |
|
|
|
|
|
|
|
3,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
63,032 |
|
|
$ |
10,731 |
|
|
$ |
55,115 |
|
|
$ |
128,878 |
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
3,264 |
|
|
$ |
698 |
|
|
$ |
150 |
(b4) |
|
$ |
4,112 |
|
|
Accrued and other liabilities
|
|
|
8,083 |
|
|
|
1,972 |
|
|
|
|
|
|
|
10,055 |
|
|
Taxes payable
|
|
|
2,695 |
|
|
|
289 |
|
|
|
|
|
|
|
2,984 |
|
|
Debt due within one year
|
|
|
9,861 |
|
|
|
1,244 |
|
|
|
|
|
|
|
11,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
23,903 |
|
|
|
4,203 |
|
|
|
150 |
|
|
|
28,256 |
|
LONG-TERM DEBT
|
|
|
13,385 |
|
|
|
2,142 |
|
|
|
|
|
|
|
15,527 |
|
DEFERRED INCOME TAXES
|
|
|
2,307 |
|
|
|
723 |
|
|
|
2,788 |
(b5) |
|
|
5,818 |
|
OTHER NON-CURRENT LIABILITIES
|
|
|
3,553 |
|
|
|
827 |
|
|
|
1,447 |
(b6) |
|
|
5,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
43,148 |
|
|
|
7,895 |
|
|
|
4,385 |
|
|
|
55,428 |
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
1,505 |
|
|
|
|
|
|
|
|
|
|
|
1,505 |
|
|
|
Common stock
|
|
|
2,523 |
|
|
|
990 |
|
|
|
(2 |
)(b7) |
|
|
3,511 |
|
|
|
Additional paid-in capital
|
|
|
2,779 |
|
|
|
1,521 |
|
|
|
51,057 |
(b7) |
|
|
55,357 |
|
|
|
Reserve for ESOP debt retirement
|
|
|
(1,271 |
) |
|
|
|
|
|
|
|
|
|
|
(1,271 |
) |
|
|
Accumulated other comprehensive income
|
|
|
(366 |
) |
|
|
(760 |
) |
|
|
760 |
(b7) |
|
|
(366 |
) |
|
|
Retained earnings
|
|
|
14,714 |
|
|
|
1,085 |
|
|
|
(1,085 |
) (b7) |
|
|
14,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
19,884 |
|
|
|
2,836 |
|
|
|
50,730 |
(b7) |
|
|
73,450 |
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$ |
63,032 |
|
|
$ |
10,731 |
|
|
$ |
55,115 |
|
|
$ |
128,878 |
|
See accompanying Notes to Consolidated Financial
Statements
II-6
Chapter Two Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
|
|
(a) |
Certain reclassifications have been made to the historical
presentation of Procter & Gamble and Gillette to
conform to the presentation used in the Unaudited Pro Forma
Condensed Combined Balance Sheet. |
|
(b) |
Gillette shareholders will receive 0.975 shares of
Procter & Gamble common stock for each share of
Gillette common stock. Each outstanding Gillette stock option
will become fully-vested and exercisable immediately prior to
the merger and will be exchanged for an equivalent number of
shares. Shares of Procter & Gamble common stock to be
issued to Gillette shareholders in the merger will represent
approximately 28% of the outstanding Procter & Gamble
common stock after the merger on a fully diluted basis. |
Under the purchase method of accounting, the total consideration
was determined using the average Procter & Gamble
closing stock prices beginning two days before and ending two
days after January 28, 2005, the date the acquisition was
agreed to and announced. The preliminary consideration is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common | |
|
|
|
|
|
|
|
|
Shares | |
|
Capital in | |
|
|
|
|
|
|
(stated value | |
|
Excess of | |
|
|
|
|
|
|
$1.00 share) | |
|
Par Value | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
(b7)
|
|
Issuance of Procter & Gamble shares to Gillettes
shareholders (988.3 million shares at $54.20) |
|
$ |
988 |
|
|
$ |
52,578 |
|
|
$ |
53,566 |
|
(b4)
|
|
Estimated Procter & Gamble transaction costs |
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration |
|
|
|
|
|
|
|
|
|
$ |
53,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Procter & Gamble has not completed an assessment of the
fair value of assets and liabilities of Gillette and the related
business integration plans. The table below represents a
preliminary allocation of the total consideration to
Gillettes tangible and intangible assets and liabilities
based on managements preliminary estimate of their
respective fair value as of the date of the business combination. |
|
|
|
|
|
|
|
(b7)
|
|
Gillettes historical net book value |
|
$ |
2,836 |
|
(b3)
|
|
Elimination of Gillettes historical goodwill |
|
|
(1,052 |
) |
(b1)
|
|
Adjustment to fair value inventory |
|
|
58 |
|
(b2)
|
|
Adjustment to fair value property, plant and equipment |
|
|
818 |
|
(b3)
|
|
Adjustment to fair value identifiable intangible assets |
|
|
9,863 |
|
(b6)
|
|
Adjustment to fair value pension and post-retirement obligations |
|
|
(1,447 |
) |
(b5)
|
|
Deferred tax impact of purchase accounting adjustments |
|
|
(2,788 |
) |
(b3)
|
|
Residual goodwill created from the merger |
|
|
45,428 |
|
|
|
|
|
|
|
|
|
Total consideration allocated |
|
$ |
53,716 |
|
|
|
|
|
|
|
|
|
|
Upon completion of the fair value assessment after the closing
of the merger, Procter & Gamble anticipates that the
ultimate purchase price allocation may differ from the
preliminary assessment outlined above. Any changes to the
initial estimates of the fair value of the assets and
liabilities will be allocated to residual goodwill. |
|
|
For purposes of the preliminary allocation, Procter &
Gamble has estimated a fair value adjustment for Gillettes
property, plant and equipment equal to 20% of Gillettes
accumulated depreciation, based on valuation studies from other
recent Procter & Gamble acquisitions. The fair value
adjustment will be depreciated over an estimated
weighted-average useful life of fifteen years. |
II-7
Chapter Two Selected Financial Data
|
|
|
Procter & Gamble has estimated the fair value of
Gillettes identifiable intangible assets as $10,420. The
preliminary allocation included in these pro forma financial
statements is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated | |
|
|
|
|
average | |
|
|
Increase | |
|
remaining | |
|
|
in value | |
|
useful life | |
|
|
| |
|
| |
Asset class:
|
|
|
|
|
|
|
|
|
Brand Intangibles indefinite lived
|
|
$ |
5,803 |
|
|
|
Indefinite |
|
Brand Intangibles definite lived
|
|
|
3,158 |
|
|
|
18 years |
|
Technology and customer relationships
|
|
|
1,459 |
|
|
|
15 years |
|
|
|
|
|
|
|
|
|
|
$ |
10,420 |
|
|
|
|
|
|
|
|
The majority of this intangible valuation relates to brand
intangibles, including Gillette, Duracell, Oral B, Braun and
others. Procter & Gambles preliminary assessment
as to brand intangibles that have an indefinite life and those
that have a definite life was based on a number of factors,
including the competitive environment, market share, brand
history, operating plan and the macroeconomic environment of the
countries in which the brand is sold. For perspective, if
Procter & Gamble determines that 50 percent of the
amount allocated to indefinite lived intangible assets is more
appropriately allocated to definite lived intangible assets with
an estimated weighted average useful life of fifteen years, the
annual income statement impact is estimated as $135 after-tax,
or $0.04 per share. |
|
|
Procter & Gamble has estimated the fair value of
Gillettes pension and post-retirement obligation based on
Gillettes unrecognized actuarial losses as of
December 31, 2004. The recognition of the fair value of
Gillettes pension and post-retirement obligation
eliminates the unrecognized actuarial loss and related
amortization expense over the estimated weighted-average
remaining service life of eighteen years. |
|
|
Deferred income tax impacts as a result of purchase accounting
adjustments are estimated at the Procter & Gamble
effective income tax rate for the periods presented, which
reflects our best estimate of Procter & Gamble
statutory income tax rates for all tax jurisdiction. |
II-8
Chapter Three Information About the Meetings
and Voting
CHAPTER THREE:
INFORMATION ABOUT THE MEETINGS AND VOTING
The Procter & Gamble board of directors is using this
joint proxy statement/ prospectus to solicit proxies from the
holders of Procter & Gamble common stock, Series A
ESOP Convertible Class A Preferred Stock and Series B
ESOP Convertible Class A Preferred Stock for use at the
special meeting of Procter & Gambles
shareholders. The Gillette board of directors is using this
document to solicit proxies from the holders of Gillette common
stock for use at the special meeting of Gillettes
shareholders. The companies are first mailing this joint proxy
statement/ prospectus and accompanying form of proxy to
Procter & Gamble and Gillette shareholders on or about
[ ],
2005.
Matters Relating to the Meetings
|
|
|
|
|
|
|
|
Procter & Gamble Meeting |
|
Gillette Meeting |
|
Time and Place:
|
|
[ ], 2005 at [ ],
local time, at the Procter & Gamble General Offices,
Two Procter & Gamble Plaza, Cincinnati, OH 45202. |
|
[ ], 2005 at [ ],
local time, at [ ]. |
|
Admission
to Meeting:
|
|
An admission ticket, which is required for entry into the
Procter & Gamble special meeting, is included in the
accompanying joint proxy statement/ prospectus. If you plan to
attend the special meeting, please submit your proxy and present
the admission ticket in order to gain admittance to the meeting.
This ticket admits only the shareholder listed on the reverse
side and is not transferable.
If your shares are held in the name of a broker, trust, bank, or
other nominee and you plan to attend the meeting, you should
bring with you a proxy or letter from that broker, trust, bank
or nominee that confirms that you are the beneficial owner of
those shares. |
|
Proof of ownership of Gillette common stock, as well as a form
of personal identification, may be requested in order to be
admitted to the special meeting
If you are a shareholder of record, your name can be verified
against Gillettes shareholder list. If your shares are
held in the name of a bank, broker, or other holder of record,
proof of your ownership of Gillette stock, such as a bank or
brokerage account statement, may be requested to be admitted to
the special meeting.
No cameras, recording equipment, or electronic devices will be
permitted in the special meeting, and large bags, briefcases, or
packages may be subject to inspection. |
|
Purpose of Meeting
is to Vote on the
Following Items:
|
|
1. To adopt the merger agreement and approve the issuance
of Procter & Gamble common stock in the merger, as
described in Chapter One The Merger on
page .
2. To transact such other business as may properly come
before the meeting, and any adjournment or postponement thereof. |
|
1. To adopt the merger agreement and approve the merger, as
described in Chapter One The Merger on
page .
2. To transact such other business as may properly come
before the meeting, and any adjournment or postponement thereof. |
|
Record Date:
|
|
The record date for Procter & Gamble shares entitled to
vote is
[ ], 2005. |
|
The record date for Gillette shares entitled to vote is
[ ], 2005. |
|
III-1
Chapter Three Information About the Meetings
and Voting
|
|
|
|
|
|
|
|
Procter & Gamble Meeting |
|
Gillette Meeting |
|
Outstanding
Shares Held:
|
|
As of [ ],
2005, the record date for the Procter & Gamble special
meeting, there were approximately
[ ] shares of Procter &
Gamble common stock outstanding,
[ ] shares of Procter &
Gamble Series A ESOP Preferred Stock outstanding, and
[ ] shares of Procter &
Gamble Series B ESOP Preferred Stock outstanding. |
|
As of [ ], the record date for the
Gillette special meeting, there were approximately
[ ] shares of Gillette common stock
outstanding. |
|
Shares Entitled to
Vote:
|
|
Shares entitled to vote at the Procter & Gamble special
meeting are Procter & Gamble common stock,
Series A ESOP Preferred Stock and Series B ESOP
Preferred Stock held as of the close of business on the record
date, [ ],
2005, voting together as a single class.
Each share of Procter & Gamble stock is entitled to one
vote. Shares held by Procter & Gamble and its
subsidiaries as treasury shares are not voted. |
|
Shares entitled to vote at the Gillette special meeting are
Gillette common stock held as of the close of business on the
record date, [ ], 2005.
Each share of Gillette common stock is entitled to one vote.
Shares held by Gillette in its treasury are not voted. |
|
|
Quorum Requirement:
|
|
A quorum of shareholders is necessary to hold a valid meeting.
The presence in person or by proxy at the meeting of holders of
a majority of the outstanding shares of Procter &
Gamble stock entitled to vote at the meeting is a quorum.
Abstentions and broker non-votes count as present for
establishing a quorum. Shares held by Procter & Gamble
and its subsidiaries as treasury shares do not count toward a
quorum.
A broker non-vote occurs on an item when a broker is not
permitted to vote on that item without instruction from the
beneficial owner of the shares and no instruction is given. |
|
A quorum of shareholders is necessary to hold a valid meeting.
The presence in person or by proxy at the meeting of holders of
a majority of the votes represented by outstanding shares of
Gillette common stock entitled to vote at the meeting is a
quorum.
Abstentions and broker non-votes count as present and entitled
to vote for establishing a quorum. Shares held by Gillette in
its treasury do not count toward a quorum.
A broker non-vote occurs on an item when a broker is not
permitted to vote on that item without instruction from the
beneficial owner of the shares and no instruction is given. |
|
Shares Beneficially
Owned by Procter &
Gamble and Gillette
Directors and
Executive Officers as of [ ], 2005.
|
|
Procter & Gamble directors and officers beneficially
owned [ ] shares of
Procter & Gamble common stock, Series A ESOP
Preferred Stock, and Series B ESOP Preferred Stock on the
record date, including exercisable options. These shares
represent in total approximately [ ]% of
the total voting power of Procter & Gambles
voting securities. |
|
Gillette directors and officers beneficially owned
[ ] shares of Gillette common stock
on the record date, including exercisable options. These shares
represent in total approximately [ ]% of
the total voting power of Gillettes voting securities. |
|
III-2
Chapter Three Information About the Meetings
and Voting
Vote Necessary to Approve the Procter & Gamble and
Gillette Proposals
|
|
|
|
Company |
|
Vote Necessary |
|
Procter &
Gamble
|
|
Adoption of the merger agreement and approval of the issuance
shares of Procter & Gamble common stock in the merger
requires the affirmative vote of at least a majority of the
outstanding shares of Procter & Gamble common stock,
Series A ESOP Preferred Stock, and Series B ESOP
Preferred Stock, voting together as a single class. Abstentions
and broker non-votes have the same effect as a vote against the
proposal. |
|
Gillette
|
|
Adoption of the merger agreement and approval of the merger
requires the affirmative vote of at least a majority of the
outstanding shares of Gillette common stock. Abstentions and
broker non-votes have the same effect as a vote against the
proposal. |
|
|
|
* |
Under New York Stock Exchange rules, if your broker holds your
shares in its name, your broker may not vote your shares on, in
the case of Procter & Gamble, the proposal to adopt the
merger agreement and approve the issuance of Procter &
Gamble common stock in the merger, or, in the case of Gillette,
the proposal to adopt the merger agreement and approve the
merger absent instructions from you. Without your voting
instructions on those items, a broker non-vote will occur. |
Proxies
Submitting Your Proxy. You may vote in person by ballot
at your special meeting or by submitting a proxy. Please submit
your proxy even if you plan to attend your special meeting. If
you attend the special meeting, you may vote by ballot, thereby
canceling any proxy previously given.
Voting instructions are included on your proxy card. If you
properly give your proxy and submit it to Procter &
Gamble or Gillette, as the case may be, in time to vote, one of
the individuals named as your proxy will vote your shares as you
have directed. You may vote for or against the proposals or
abstain from voting.
How to Vote by Proxy
|
|
|
|
|
|
|
|
Procter & Gamble |
|
Gillette |
|
By Mail:
|
|
To submit your proxy by mail, simply mark your proxy, date and
sign it, and if you are a shareholder of record, return it to
ADP, in the postage-paid envelope provided. If the envelope is
missing, please address your completed proxy card to The
Procter & Gamble Company c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717. If you are a beneficial owner, please refer
to your proxy card or the information provided to you by your
bank, broker, custodian or record holder. |
|
To submit your proxy by mail, simply mark your proxy, date and
sign it, and if you are a shareholder of record, return it to
ADP, in the postage-paid envelope provided. If the envelope is
missing, please address your completed proxy card to The
Gillette Company c/o ADP, 51 Mercedes Way, Edgewood, NY
11717. If you are a beneficial owner, please refer to your proxy
card or the information provided to you by your bank, broker,
custodian or record holder. |
|
III-3
Chapter Three Information About the Meetings
and Voting
|
|
|
|
|
|
|
|
Procter & Gamble |
|
Gillette |
|
By Telephone:
|
|
If you are a shareholder of record, you can submit your proxy by
telephone by calling the toll-free telephone number on your
proxy card. Telephone voting is available 24 hours a day
and will be accessible until 11:59 p.m. on [ ].
Easy-to-follow voice prompts allow you to submit your proxy and
confirm that your instructions have been properly recorded. If
you are a beneficial owner, please refer to your proxy card or
the information provided by your bank, broker, custodian or
record holder for information on telephone voting. If you
submit your proxy by telephone you do not need to return your
proxy card. If you are located outside the United States, Canada
and Puerto Rico, see your proxy card or other materials for
additional instructions. If you hold shares through a broker or
other custodian, please check the voting form used by that firm
to see if it offers telephone voting. |
|
If you are a shareholder of record, you can submit your proxy by
telephone by calling the toll-free telephone number on your
proxy card. Telephone voting is available 24 hours a day
and will be accessible until 11:59 p.m. on [ ].
Easy-to-follow voice prompts allow you to submit your proxy and
confirm that your instructions have been properly recorded. If
you are a beneficial owner, please refer to your proxy card or
the information provided by your bank, broker, custodian or
record holder for information on telephone voting. If you
submit your proxy by telephone you do not need to return your
proxy card. If you are located outside the United States, Canada
and Puerto Rico, see your proxy card or other materials for
additional instructions. If you hold shares through a broker or
other custodian, please check the voting form used by that firm
to see if it offers telephone voting. |
|
By Internet:
|
|
You can also choose to submit your proxy on the Internet. If you
are a shareholder of record, the web site for Internet voting is
on your proxy card. Internet voting is available 24 hours a
day, and will be accessible until 11:59 p.m. on
[ ], 2005. If you are a
beneficial owner, please refer to your proxy card or the
information provided by your bank, broker, custodian or record
holder for information on Internet voting. As with telephone
voting, you will be given the opportunity to confirm that your
instructions have been properly recorded. If you submit your
proxy on the Internet, you do not need to return your proxy
card. If you hold shares through a broker or other
custodian, please check the voting form to see if it offers
Internet voting. |
|
You can also choose to submit your proxy on the Internet. If you
are a shareholder of record, the web site for Internet voting is
on your proxy card. Internet voting is available 24 hours a
day, and will be accessible until 11:59 p.m. on [ ],
2005. If you are a beneficial owner, please refer to your
proxy card or the information provided by your bank, broker,
custodian or record holder for information on Internet voting.
As with telephone voting, you will be given the opportunity to
confirm that your instructions have been properly recorded.
If you submit your proxy on the Internet, you do not need to
return your proxy card. If you hold shares through a broker
or other custodian, please check the voting form to see if it
offers Internet voting. |
|
If you submit your proxy but do not make specific choices, your
proxy will follow the respective board of director
recommendations and vote your shares:
|
|
|
Procter & Gamble |
|
Gillette |
|
|
|
FOR adoption of the merger agreement
and the approval of the issuance of Procter & Gamble
common stock in the merger
|
|
FOR adoption of the merger agreement
and approval of the merger |
III-4
Chapter Three Information About the Meetings
and Voting
Proxies for Procter & Gamble Plan Participants
If you are a participant in The Procter & Gamble
Shareholder Investment Program (SIP), you can vote
shares of common stock held for your account through the SIP
Custodian.
If you are a participant in The Procter & Gamble Profit
Sharing Trust and Employee Stock Ownership Plan, you can
instruct the trustees how to vote the shares of stock that are
allocated to your account. If you do not vote your shares, the
trustees will vote them in proportion to those shares for which
they have received voting instructions. Likewise, the trustees
will vote shares that have not been allocated to any account in
the same manner.
Procter & Gamble Householding Information
Procter & Gamble has adopted the procedure approved by
the SEC called householding. Under this procedure,
shareholders of record who have the same address and last name
and do not participate in electronic delivery of proxy materials
will receive only one copy of this joint prospectus/proxy
statement unless one or more of these shareholders notifies
Procter & Gamble that they wish to continue receiving
individual copies. This procedure will reduce the printing costs
and postage fees of Procter & Gamble and Gillette in
connection with this joint prospectus/proxy statement and of
Procter & Gamble and the combined company for future
annual reports and proxy statements. Shareholders who
participate in householding will continue to receive separate
proxy cards. Also, householding will not in any way affect
dividend check mailings.
If you and other Procter & Gamble shareholders of
record with whom you share an address currently receive multiple
copies of annual reports and/or proxy statements, or if you hold
stock in more than one account and in either case, you wish to
receive only a single copy of future annual reports or proxy
statements for your household, please contact Procter &
Gamble at (800) 742-6253 in the U.S., or inform
Procter & Gamble in writing at: The Procter &
Gamble Company, Shareholder Services, P.O. Box 5572,
Cincinnati, OH 45201-5572.
If you participate in householding and wish to receive a
separate copy of this joint prospectus/proxy statement, or if
you do not wish to participate in householding and prefer to
receive separate copies of future materials, please call
Procter & Gamble toll-free at (800) 742-6253 in
the U.S., or inform us in writing at: The Procter &
Gamble Company, Shareholder Services, P.O. Box 5572,
Cincinnati, OH 45201-5572. Procter & Gamble will
deliver the requested documents to you promptly upon your
request.
Beneficial shareholders can request information about
householding from their bank, broker, custodian or record holder
of Procter & Gamble common stock.
Proxies for Gillette Plan Participants
If you are a participant in the Gillette Employees Savings
Plan and/or the Employee Stock Ownership Plan, you will receive
only one proxy card for all the shares of Gillette common stock
held in your accounts.
If you participate in the Gillette Employees Savings Plan,
Gillette Canada Inc. Retirement Income Savings Plan, Employee
Stock Ownership Plan, or Global Employee Stock Ownership Plan,
you are entitled to give the plans trustees voting
instructions for the shares held in your account. The proxy card
will serve as a voting instruction card for the plans
trustees. If you do not vote your shares or specify your voting
instructions on your proxy card, the plans trustees will
vote your shares in the same proportion as the shares for which
voting instructions have been received from other participants
of each plan.
Because the trustee or custodian for the relevant plan must
process voting instructions from participants before the date of
the special meeting, you are urged to deliver your instructions
well in advance of the special meeting so that the instructions
are received no later than
[ ],
2005.
III-5
Chapter Three Information About the Meetings
and Voting
Gillette Householding Information
Gillette has adopted the procedure approved by the SEC called
householding. Under this procedure, shareholders of
record who have the same address and last name and do not
participate in electronic delivery of proxy materials will
receive only one copy of this joint prospectus/proxy statement,
unless one or more of these shareholders notifies Gillette that
they wish to continue receiving individual copies. This
procedure will reduce the printing costs and postage fees of
Procter & Gamble and Gillette in connection with this
joint prospectus/proxy statement and of the combined company for
future annual reports and proxy statements. Shareholders who
participate in householding will continue to receive separate
proxy cards.
If you and other Gillette shareholders of record with whom you
share an address currently receive multiple copies of annual
reports and proxy statements, or if you hold stock in more than
one account and wish to receive only a single copy of future
annual reports and proxy statements for your household, please
contact ADP, Householding Department, 51 Mercedes Way, Edgewood,
NY 11717, or call toll-free (800) 542-1061.
If you participate in householding and wish to receive a
separate copy of this joint prospectus/proxy statement, or if
you do not wish to participate in householding and prefer to
receive separate copies of future materials, please contact ADP
at the above address or phone number.
Beneficial shareholders can request information about
householding from their bank, broker, custodian or record holder
of Gillette common stock.
Revoking Your Proxy
If you submit a completed proxy card with instructions on how to
vote your shares and then wish to revoke your instructions, you
should submit a notice of revocation to Procter &
Gamble or Gillette, as appropriate, as soon as possible. You may
revoke your proxy at any time before it is voted by:
|
|
|
|
|
timely delivery of a valid, later-dated proxy, including a proxy
given by telephone or Internet; |
|
|
|
written notice to your companys Secretary before the
meeting that you have revoked your proxy; or |
|
|
|
voting by ballot at either the Procter & Gamble special
meeting or Gillette special meeting. |
Voting in Person
If you are a shareholder of record and you wish to vote in
person at the Procter & Gamble or Gillette special
meeting, a ballot will be provided at the meeting. However, if
your shares are held in the name of your bank, broker, custodian
or other record holder, you must obtain a proxy, executed in
your favor, from the holder of record to be able to vote at the
meeting.
People with Disabilities
For the Procter & Gamble special meeting, shareholders
attending the special meeting who are hearing-impaired should
identify themselves during registration so they can sit in a
special section where an interpreter will be available.
Proxy Solicitation
Procter & Gamble and Gillette will each pay its own
costs of soliciting proxies.
In addition to this mailing, proxies may be solicited by
directors, officers or employees of Procter & Gamble
and Gillette in person or by telephone or electronic
transmission. None of the directors, officers or employees will
be directly compensated for such services. Procter &
Gamble has retained Georgeson Shareholder Communications, Inc.
to assist in the distribution and solicitation of proxies.
Procter & Gamble will pay Georgeson Shareholder
Communications, Inc. a fee of
$[ ],
plus reasonable expenses,
III-6
Chapter Three Information About the Meetings
and Voting
for these services. Gillette has also retained Georgeson
Shareholder Communications, Inc. to assist in the distribution
and solicitation of proxies. Gillette will pay Georgeson
Shareholder Communications, Inc. a fee of
$[ ],
plus reasonable expenses, for these services.
The extent to which these proxy soliciting efforts will be
necessary depends entirely upon how promptly proxies are
submitted. You should submit your proxy without delay by mail or
by telephone or the Internet. The companies also reimburse
brokers and other nominees for their expenses in sending these
materials to you and getting your voting instructions.
Do not send in any stock certificates with your proxy cards. The
exchange agent will mail transmittal forms with instructions for
the surrender of stock certificates for Gillette common stock to
former Gillette shareholders as soon as practicable after the
completion of the merger.
Other Business; Adjournments
Procter & Gamble and Gillette are not currently aware
of any other business to be acted upon at either meeting. If,
however, other matters are properly brought before either
meeting, or any adjourned meeting, your proxies include
discretionary authority on the part of the individuals appointed
to vote your shares or act on those matters according to their
best judgment, including to adjourn the meeting.
Adjournments may be made for the purpose of, among other things,
soliciting additional proxies. Any adjournment may be made from
time to time by approval of the holders of shares representing a
majority of the votes present in person or by proxy at the
meeting, whether or not a quorum exists, without further notice
other than by an announcement made at the meeting. Neither
company currently intends to seek an adjournment of its meeting.
Gillette Shareholder Account Maintenance
Gillettes Transfer Agent is The Bank of New York. All
communications concerning accounts of shareholders of record,
including address changes, name changes, inquiries as to
requirements to transfer shares of common stock, and similar
issues, should be made by calling the Banks toll-free
number, 1-888-218-2841, or by e-mail at
shareowner-svcs@bankofny.com. In addition, you can access your
account through The Bank of New Yorks web site. To access
your account on the Internet, visit www.stockbny.com.
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CHAPTER FOUR:
CERTAIN LEGAL INFORMATION
COMPARISON OF PROCTER & GAMBLE/ GILLETTE
SHAREHOLDER RIGHTS
As a result of the merger, Gillette shareholders will receive
Procter & Gamble common stock in exchange for their
shares of Gillette common stock. The following is a summary of
certain material differences between the rights of holders of
Gillette common stock and the rights of holders of
Procter & Gamble common stock. These differences arise
in part from the differences between the Delaware General
Corporation Law (Delaware Law) and Ohio General
Corporation Law (Ohio Law). Additional differences
arise from the governing instruments of the two companies (in
the case of Gillette, the Gillette certificate of incorporation
(the Gillette Certificate) and the Gillette bylaws
(the Gillette Bylaws), and, in the case of
Procter & Gamble, the Procter & Gamble
articles of incorporation (the Procter & Gamble
Articles) and the Procter & Gamble Code of
Regulations (the Procter & Gamble
Regulations)). Although it is impractical to compare all
of the aspects in which the Delaware Law and the Ohio Law and
Gillettes and Procter & Gambles governing
instruments differ with respect to shareholders rights,
the following discussion summarizes certain significant
differences between them.
Copies of the Gillette Certificate, the Gillette Bylaws, the
Procter & Gamble Articles and the Procter &
Gamble Regulations are incorporated by reference and will be
sent to holders of Gillette common stock upon request. See
Where You Can Find More Information. The summary
below is not complete and it does not identify all differences
that may, under given situations, be material to shareholders
and is subject in all respects, and is qualified by reference to
the Ohio Law, the Delaware Law, the Procter & Gamble
Articles, the Procter & Gamble Regulations, the
Gillette Certificate and the Gillette Bylaws.
Public Markets for the Shares
Shares of Procter & Gamble common stock and shares of
Gillette common stock are quoted on the New York Stock Exchange.
After the merger, Procter & Gamble common stock,
including those issued in connection with the merger, will be
quoted on the New York Stock Exchange.
Amendment of Charter Documents
Unless a certificate of incorporation otherwise provides,
Delaware Law requires approval by holders of a majority of the
voting power of a corporation in order to amend a
corporations certificate of incorporation. The Gillette
Certificate does not so provide.
To amend an Ohio corporations articles of incorporation,
Ohio Law requires the approval of shareholders holding
two-thirds of the voting power of the corporation or, in cases
in which class voting is required, of shareholders holding
two-thirds of the voting power of such class, unless otherwise
specified in such corporations articles of incorporation.
The Procter & Gamble Articles specify that the holders
of a majority of the voting power of Procter & Gamble,
or, when appropriate, any class of shareholders, may amend the
Procter & Gamble Articles.
Amendment and Repeal of Bylaws and Regulations
Delaware Law provides that holders of a majority of the voting
power of a corporation, and, when provided in the certificate of
incorporation, the board of directors of the corporation, have
the power to adopt, amend and repeal the bylaws of the
corporation. The Gillette Certificate grants the board of
directors of Gillette such power.
Ohio Law generally provides that only shareholders of a
corporation have the power to amend and repeal a
corporations code of regulations, by a majority of the
outstanding voting shares if at a meeting of
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shareholders, and by two-thirds of the outstanding voting shares
if by written consent. Under certain circumstances, a majority
vote of disinterested shares is also required to
amend or repeal a corporations code of regulations. The
Procter & Gamble Regulations provide that such
amendments be made consistent with Ohio Law.
Classification of Board of Directors
Delaware Law permits, but does not require, a classified board
of directors, pursuant to which the directors can be divided
into as many as three classes with staggered terms of office,
with only one class of directors standing for election each
year. The Gillette Certificate calls for the division of its
board of directors into three classes, as nearly equal in size
as possible, with one class being elected annually and with each
director elected for a term of three years. Terms of four
directors will expire at Gillettes 2005 annual meeting.
Ohio Law also permits, but does not require, an Ohio corporation
to provide in its articles of incorporation or code of
regulations for a classified board of directors, pursuant to
which the directors can be divided into two or three classes
consisting of not less than three directors each with staggered
terms of office. The Procter & Gamble Regulations also
calls for a division of its board of directors into three
classes, as nearly equal in size as possible, with one class
being elected annually and with each director elected for a term
of three years. Terms of six directors will expire at
Procter & Gambles 2005 annual meeting.
Removal of Directors
Delaware Law provides that directors may be removed from office
with or without cause, by the holders of a majority of all
outstanding voting stock of a corporation, except that,
(i) unless its governing documents provide otherwise, in
the case of a corporation that has a classified board, directors
may be removed from office only for cause, and (ii) in the
case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed
without cause if the votes cast against such removal would be
sufficient to elect such director if then cumulatively voted at
an election of the board of directors. Gillettes
Certificate and Bylaws provide that a director may be removed
only for cause and Gillettes Bylaws further provide that
such removal may only be by the affirmative vote of a majority
of the then-outstanding shares entitled to vote for the election
of such director.
Ohio Law provides that directors may remove any director if
(i) by an order of court, such director has been found to
be of unsound mind, (ii) such director is adjudicated
bankrupt, or (iii) such director fails to meet any
qualifications for office. Ohio Law further provides that
directors may be removed, with or without cause, by the
affirmative vote of the holders of a majority of the voting
power of a corporation, except that, unless all the directors or
all the directors of a particular class are removed, no
individual director may be removed if the votes of a sufficient
number of shares are cast against such directors removal
that, if cumulatively voted at an election of all the directors,
or all the directors of a particular class, as the case may be,
would be sufficient to elect at least one director unless the
corporations governing documents provide otherwise. The
Procter & Gamble Regulations provide that removal of a
director requires the affirmative votes of holders of at least
80% of the voting power of Procter & Gamble.
Vacancies on the Board
Delaware Law provides that vacancies and newly created
directorships resulting from a resignation or any increase in
the authorized number of directors elected by all of the
shareholders having the right to vote as a single class may be
filled by a majority of the directors then in office or by a
sole remaining director, unless the governing documents of a
corporation provide otherwise. Neither the Gillette Certificate
nor the Gillette Bylaws provide otherwise.
Ohio Law provides that vacancies on a corporations board
of directors may be filled by a majority of the remaining
directors of the corporation unless the governing documents of
the corporation provide
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otherwise. The Procter & Gamble Regulations provide
that vacancies on the Procter & Gamble Board for any
unexpired time may be filled by the Procter & Gamble
board of directors.
Right to Call Special Meetings of Shareholders
Delaware Law permits special meetings of shareholders to be
called by a board of directors and such other persons, including
shareholders, as a certificate of incorporation or bylaws may
provide. Delaware Law does not require that shareholders be
given the right to call special meetings. The Gillette Bylaws
provide that special meetings may be called by resolution of the
board of directors of Gillette, or by a writing filed with the
Secretary and signed by the Chief Executive Officer or by a
majority of the directors. The Gillette Bylaws provide that,
unless otherwise required by law, a special meeting of
shareholders may not be called by any other person or persons.
Ohio Law provides that (i) the Chairman of the Board, the
President or, in case of the Presidents death or
disability, the Vice President authorized to exercise the
authority of the President, (ii) the directors by action at
a meeting or a majority of the directors acting without a
meeting, or (iii) holders of at least 25% of the
outstanding voting shares of a corporation, unless the
corporations articles or regulations specifies another
percentage for such purpose (which may not be greater than 50%),
have the authority to call special meetings of shareholders. The
Procter & Gamble Regulations provide that special
meetings of Procter & Gamble shareholders may be called
as provided by law.
Shareholder Action Without a Meeting
Delaware Law provides that any action that may be taken at a
meeting of shareholders may be taken without a meeting, without
prior notice and without a vote, if the holders of the
outstanding stock having not less than the minimum number of
votes otherwise required to authorize or take such action at a
meeting of shareholders consent in writing, unless otherwise
provided by a corporations certificate of incorporation.
Neither the Gillette Certificate nor the Gillette Bylaws
otherwise provide.
Ohio Law provides that any action that may be authorized or
taken by shareholders of a corporation at a meeting of
shareholders may be authorized or taken without a meeting with
the unanimous written consent of all shareholders entitled to
vote at such meeting. The Procter & Gamble Regulations
are silent as to this right.
Class Voting
Delaware Law provides that the holders of the outstanding shares
of a class are entitled to vote separately as a class with
respect to amendments to a corporations certificate of
incorporation that increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par
value of shares of such class, or otherwise adversely affect the
holders of such class.
Ohio Law provides that holders of a particular class of shares
are entitled to vote as a separate class upon certain amendments
to the articles of incorporation, including, but not limited to,
amendments that decrease the aggregate number of issued shares
of such class, increase or decrease the par value of shares of
such class, or are otherwise substantially prejudicial to the
holders of such class.
Cumulative Voting
Delaware Law provides that shareholders of a corporation do not
have the right to cumulate their votes in the election of
directors unless such right is granted in the certificate of
incorporation of the corporation. The Gillette Certificate does
not grant such right.
Ohio Law provides that each shareholder of a corporation has the
right to vote cumulatively in the election of directors if
certain notice requirements are satisfied unless the articles of
incorporation of a corporation are amended to eliminate
cumulative voting for directors. The Procter & Gamble
Articles eliminate the rights of Procter & Gamble
shareholders to vote cumulatively in the election of directors.
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Provisions Affecting Control Share Acquisitions and Business
Combinations
Section 203 of the Delaware Law provides generally that any
person who acquires 15% or more of a corporations voting
stock (thereby becoming an interested stockholder)
may not engage in a wide range of business
combinations with the corporation for a period of three
years following the date the person became an interested
shareholder, unless (1) the board of directors of the
corporation has approved, prior to that acquisition date, either
the business combination or the transaction that resulted in the
person becoming an interested shareholder, (2) upon
consummation of the transaction that resulted in the person
becoming an interested shareholder, that person owns at least
85% of the corporations voting stock outstanding at the
time the transaction commenced (excluding shares owned by
persons who are directors and also officers and shares owned by
employee stock plans in which participants do not have the right
to determine confidentially whether shares will be tendered in a
tender or exchange offer), or (3) the business combination
is approved by the board of directors and authorized by the
affirmative vote (at an annual or special meeting and not by
written consent) of at least
662/3%
of the outstanding voting stock not owned by the interested
shareholder.
These restrictions on interested shareholders do not apply under
certain circumstances, including, but not limited to, the
following: (1) if the corporations original
certificate of incorporation contains a provision expressly
electing not to be governed by Section 203 of the Delaware
Law, or (2) if the corporation, by action of its
shareholders, adopts an amendment to its bylaws or certificate
of incorporation expressly electing not to be governed by
Section 203 of the Delaware Law, with such amendment to be
effective 12 months thereafter. Neither the Gillette
Certificate nor the Gillette Bylaws contain a provision electing
not to be governed by Section 203 of the Delaware Law.
Like Section 203 of the Delaware Law, Chapter 1704 of
the Ohio Law prohibits an interested shareholder from engaging
in a wide range of business combinations similar to those
prohibited by Section 203 of the Delaware Law. However, in
contrast to Section 203 of the Delaware Law, under
Chapter 1704 of the Ohio Law, an interested
shareholder includes a shareholder who, directly or
indirectly, exercises or directs the exercise of 10% or more of
the voting power of the corporation. Chapter 1704
restrictions do not apply under certain circumstances,
including, but not limited to, the following: (1) if, prior
to the interested shareholders share acquisition date, the
directors of a corporation have approved the transaction or the
purchase of shares on the share acquisition date, and
(2) if a corporation, by action of its shareholders holding
at least 2/3 of the voting power of the corporation, adopts an
amendment to its articles of incorporation specifying that
Chapter 1704 of the Ohio Law shall not be applicable to the
corporation. Although no such amendment has been adopted by
Procter & Gamble, the Procter & Gamble
Articles do require the approval of at least 80% of the
outstanding shares entitled to vote before Procter &
Gamble may enter into certain transactions with related
persons, which is defined to include any person, entity or
group that directly or indirectly beneficially owns 5% or more
of the outstanding shares entitled to vote, and any affiliates
or associates of such person, entities or groups.
Under Section 1701.831 of the Ohio Law, unless the articles
of incorporation or code of regulations of a corporation
otherwise provide, any control share acquisition of an issuing
public corporation can only be made with the prior approval of
the shareholders of the corporation. A control share
acquisition is defined as any acquisition of shares of a
corporation that, when added to all other shares of that
corporation owned by the acquiring person, would enable a person
to exercise levels of voting power in any of the following
ranges: at least 20% but less than
331/3%;
at least
331/3%
but less than 50%; 50% or more. Neither the Procter &
Gamble Articles nor the Procter & Gamble Regulations
provide otherwise.
Mergers, Acquisitions, Share Purchases and Certain Other
Transactions
Delaware Law requires approval of mergers, consolidations and
dispositions of all or substantially all of a corporations
assets (other than so-called parent-subsidiary
mergers) by a majority of the voting power of the corporation,
unless the corporations certificate of incorporation
specifies a different percentage. Neither the Gillette
Certificate nor the Gillette Bylaws otherwise provide for a
different
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percentage. Delaware Law does not require shareholder approval
for majority share acquisitions or for combinations involving
the issuance of less than 20% of the voting power of the
corporation, except for business combinations subject to
Section 203 of the Delaware Law.
Ohio Law generally requires approval of mergers, dissolutions,
dispositions of all or substantially all of a corporations
assets, and majority share acquisitions and combinations
involving issuance of shares representing one-sixth or more of
the voting power of the corporation immediately after the
consummation of the transaction (other than so-called
parent-subsidiary mergers), by two-thirds of the
voting power of a corporation, unless the articles of
incorporation specify a different proportion (not less than a
majority). The Procter & Gamble Articles provide that a
majority of the outstanding shares entitled to vote is required
to approve such actions.
Section 1701.59 of the Ohio Law permits a director of a
corporation, in determining what such director reasonably
believes to be in the best interests of the corporation, to
consider, in addition to the interests of the corporations
shareholders, any of the following (1) the interests of the
corporations employees, suppliers, creditors, and
customers, (2) the economy of the state and nation,
(3) community and societal considerations, and (4) the
long-term as well as short-term interests of the corporation and
the corporations shareholders, including the possibility
that these interests may be best served by the continued
independence of the corporation. Delaware Law contains no
comparable provision.
The Gillette Bylaws require the approval of a majority of the
shares entitled to vote before Gillette is permitted to purchase
Gillette common stock from any person who has been the
beneficial owner of more than 3% of Gillettes outstanding
voting equity securities for less than the last two years at a
price that is above the average market price, unless the offer
is made to all holders of such securities on the same terms and
conditions.
Neither Procter & Gambles Regulations nor Ohio
Law contain a comparable requirement.
Rights of Dissenting Shareholders
Delaware Law provides that appraisal rights are available to
dissenting shareholders in connection with certain mergers or
consolidations. However, unless a corporations certificate
of incorporation otherwise provides, Delaware Law does not
provide for appraisal rights if (1) the shares of the
corporation are (x) listed on a national securities
exchange or designated as a national market systems security on
an interdealer quotations system by the National Association of
Securities Dealers, Inc. or (y) held of record by more than
2,000 shareholders or (2) the corporation is the
surviving corporation and no vote of its shareholders is
required for the merger. The Gillette Certificate does not
provide otherwise. See Dissenters Rights on
page . Delaware Law does
not provide appraisal rights to shareholders who dissent from
the sale of all or substantially all of a corporations
assets or an amendment to a corporations certificate of
incorporation, although a corporations certificate of
incorporation may so provide. The Gillette Certificate does not
provide otherwise.
Under Ohio Law, dissenting shareholders are entitled to
dissenters rights in connection with certain amendments to
a corporations articles of incorporation and the lease,
sale, exchange, transfer or other disposition of all or
substantially all of the assets of a corporation. Shareholders
of an Ohio corporation being merged into or consolidated with
another corporation are also entitled to dissenters
rights. In addition, shareholders of an acquiring corporation
are entitled to dissenters rights in any merger,
combination or majority share acquisition in which
such shareholders are entitled to voting rights. Ohio Law
provides shareholders of an acquiring corporation with voting
rights, and corresponding dissenters rights, if the
acquisition involves the transfer of shares of the acquiring
corporation entitling the recipients thereof to exercise
one-sixth or more of the voting power of such acquiring
corporation immediately after the consummation of the
transaction.
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Delaware Law provides, among other procedural requirements, that
a shareholders written demand for appraisal of shares must
be received before the taking of the vote on the matter giving
rise to appraisal rights.
Ohio Law provides that a shareholders written demand must
be delivered to a corporation not later than ten days after the
taking of the vote on the matter giving rise to dissenters
rights. See Annex E for the Ohio statute governing
dissenters rights.
Dividends
Both Delaware Law and Ohio Law provide that dividends may be
paid in cash, property or shares of a corporations capital
stock.
Delaware Law provides that a corporation may pay dividends out
of any surplus, and, if it has no surplus, out of any net
profits for the fiscal year in which the dividend was declared
or for the preceding fiscal year (provided that such payment out
of net profits will not reduce capital below the amount of
capital represented by all classes of shares having a preference
upon the distribution of assets).
Ohio Law provides that a corporation may pay dividends out of
surplus and if a dividend is paid out of capital surplus, the
corporation must notify its shareholders as to the kind of
surplus out of which it is paid.
Preemptive Rights of Shareholders
Delaware Law provides that no shareholder shall have any
preemptive rights to purchase additional securities of a
corporation unless the corporations certificate of
incorporation expressly grants such rights. Gillettes
Certificate does not provide for preemptive rights.
Ohio Law provides that no shareholder shall have any preemptive
rights to purchase additional securities of a corporation unless
the corporations articles of incorporation expressly grant
such rights. The Procter & Gamble Articles expressly
eliminate any preemptive rights.
Director Liability and Indemnification
Delaware Law allows a corporation to include in its certificate
of incorporation, and Gillettes certificate of
incorporation contains, a provision eliminating the liability of
a director for monetary damages for a breach of such
directors fiduciary duties as a director, except liability
(1) for any breach of the directors duty of loyalty
to Gillette or Gillette shareholders, (2) for acts or
omissions not in good faith or that involve intentional
misconduct or knowing violation of law, (3) under
Section 174 of the Delaware Law (which deals generally with
unlawful payments of dividends, stock repurchases and
redemptions), and (4) for any transaction from which the
director derived an improper personal benefit.
Ohio Law provides no comparable provision limiting the liability
of officers, employees or agents of a corporation and
Procter & Gamble Articles contain no such provision.
However, unless a corporations articles of incorporation
or code of regulations expressly states that such provision of
Ohio Law is not applicable, a director is not liable for
monetary damages unless it is proved by clear and convincing
evidence that such directors action or failure to act was
undertaken with deliberate intent to cause injury to the
corporation or with reckless disregard for the best interests of
the corporation, although such provision does not limit a
directors liability for the approval of unlawful loans,
dividends or distribution of assets. The Procter &
Gamble Articles do not provide otherwise.
Delaware Law permits a Delaware corporation to indemnify
directors, officers, employees and agents under certain
circumstances, and mandates indemnification under certain
circumstances. Delaware Law permits a corporation to indemnify
an officer, director, employee or agent for fines, judgments, or
settlements, as well as for expenses in the context of actions
other than derivative actions, if such person acted in good
faith and in a manner such person reasonably believed to be in
or not opposed to the best
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interests of the corporation or, in the case of a criminal
proceeding, if such person had no reasonable cause to believe
that such persons conduct was unlawful. Indemnification
against expenses incurred by a director, officer, employee or
agent in connection with a proceeding against such person for
actions in such capacity is mandatory to the extent that such
person has been successful on the merits. If a director,
officer, employee or agent is determined to be liable to the
corporation, indemnification for expenses is not allowable,
subject to limited exceptions when a court deems the award of
expenses appropriate. The Gillette Bylaws provide
indemnification to the fullest extent provided by Delaware Law.
Delaware Law grants express power to a Delaware corporation to
purchase liability insurance for its directors, officers,
employees and agents, regardless of whether any such person is
otherwise eligible for indemnification by the corporation.
Advancement of expenses is permitted, but a person receiving
such advances must repay those expenses if it is ultimately
determined that he is not entitled to indemnification.
Ohio Law provides that a corporation may indemnify directors,
officers, employees and agents within prescribed limits, and
must indemnify them under certain circumstances. Ohio Law does
not authorize payment by a corporation of judgments against a
director, officer, employee or agent after a finding of
negligence or misconduct in a derivative suit absent a court
order. Indemnification is required, however, to the extent such
person succeeds on the merits. In all other cases, if it is
determined that a director, officer, employee, or agent acted in
good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the corporation,
indemnification is discretionary, except as otherwise provided
by a corporations articles of incorporation, or code of
regulations, or by contract, except with respect to the
advancement of expenses to directors (as discussed in the next
paragraph). The statutory right to indemnification is not
exclusive in Ohio, and Ohio corporations may, among other
things, purchase insurance to indemnify such persons.
Ohio Law provides that a director (but not an officer, employee,
or agent) is entitled to mandatory advancement of expenses,
including attorneys fees, incurred in defending any
action, including derivative actions, brought against the
director, provided that the director agrees to cooperate with
the corporation concerning the matter and to repay the amount
advanced if it is proved by clear and convincing evidence that
such directors act or failure to act was done with
deliberate intent to cause injury to the corporation or with
reckless disregard for the corporations best interests.
The Procter & Gamble Regulations provide for
indemnification of Procter & Gamble directors and
officers in a manner consistent with Ohio Law. The
Procter & Gamble Regulations provide indemnification
for each director and officer against all costs, expenses
(including attorneys fees), judgments, and liabilities,
reasonably incurred in connection with any action in which such
director or officer is involved by reason of being a director or
officer of Procter & Gamble. Procter & Gamble
will not provide indemnification if the director or officer is
finally adjudged to have been derelict in the performance of his
duties.
Procter & Gamble will provide indemnification when the
adjudication in such action is other than on the merits and also
when a settlement or compromise is effected if a majority of
uninterested directors determines that such director or officer
has not been derelict in the performance of his duties and
adopts a resolution to that effect and, in cases of settlement
or compromise, approves the same. In cases of settlement or
compromise, Procter & Gamble will not reimburse any
amounts which by the terms of the settlement or compromise are
paid to Procter & Gamble itself by the director or
officer.
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DESCRIPTION OF PROCTER & GAMBLE CAPITAL STOCK
The following summary of the terms of the capital stock of
Procter & Gamble before and after the merger is not
meant to be complete and is qualified by reference to the
Procter & Gamble Articles and Procter & Gamble
Regulations. Copies of the Procter & Gamble Articles
and Procter & Gamble Regulations are incorporated by
reference and will be sent to shareholders of Procter &
Gamble and Gillette upon request. See Where You Can Find
More Information, on page
.
Authorized Capital Stock
Under the Procter & Gamble Articles, Procter &
Gambles authorized capital stock consists of
10,000,000,000 shares of Procter & Gamble common
stock, 600,000,000 shares of Class A Preferred Stock,
and 200,000,000 shares of Class B Preferred Stock, all
of which are without par value. As of December 31, 2004,
there were 2,522,583,573 shares of common stock,
89,248,669 shares of Series A ESOP Preferred Stock,
and 69,126,896 shares of Series B ESOP Preferred Stock
issued and outstanding, and 453,866,904 shares of common
stock were held in Procter & Gambles treasury.
Procter & Gamble Common Stock
Procter & Gamble Common Stock Outstanding. The
outstanding shares of Procter & Gamble common stock
are, and the shares of Procter & Gamble common stock
issued under the merger will be, duly authorized, validly
issued, fully paid and non-assessable.
Voting Rights. Each holder of Procter & Gamble
common stock is entitled to one non-cumulative vote for each
share of Procter & Gamble common stock held of record
on the applicable record date on all matters submitted to a vote
of shareholders.
Dividend Rights; Rights Upon Liquidation. Each holder of
Procter & Gamble common stock is entitled to receive,
from funds legally available for the payment thereof, dividends
when and as declared by resolution of Procter &
Gambles board of directors, subject to any preferential
dividend rights granted to the holders of any outstanding
Procter & Gamble preferred stock. In the event of any
liquidation, dissolution or winding up, each share of
Procter & Gamble common stock is entitled to share pro
rata in any distribution of Procter & Gambles
assets after payment or providing for the payment of liabilities
and the liquidation preference of any outstanding
Procter & Gamble shares of Class A Preferred Stock
and Class B Preferred Stock.
Conversion. Holders of Procter & Gamble common
stock do not have any conversion rights and such shares are not
subject to any redemption provisions.
Preemptive Rights. Holders of Procter & Gamble
common stock have no preemptive rights to purchase, subscribe
for or otherwise acquire any unissued or treasury shares or
other securities. No shares of Procter & Gamble common
stock are subject to any sinking fund provisions or to calls,
assessments by, or liabilities of Procter & Gamble.
Procter & Gamble Preferred Stock
Procter & Gamble Preferred Stock Outstanding.
The outstanding shares of Procter & Gamble preferred
stock are duly authorized, validly issued, fully paid and
non-assessable.
Voting Rights. Each holder of Procter & Gamble
Class A Preferred Stock is entitled to one non-cumulative
vote for each share of Procter & Gamble Class A
Preferred Stock held of record on the applicable record date on
all matters submitted to a vote of shareholders. The holders of
Class B Preferred Stock are not entitled to vote other than
as provided by law.
Dividend Rights; Rights Upon Liquidation. The holders of
Class A Preferred Stock and Class B Preferred Stock
have the right to receive dividends prior to the payment of
dividends on the common stock. Procter & Gambles
board of directors is divided into three classes and has the
power to determine
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certain terms relative to any Class A Preferred Stock and
Class B Preferred Stock to be issued, such as the power to
establish different series and to set dividend rates, the dates
of payment of dividends, the cumulative dividend rights and
dates, redemption rights and prices, sinking fund requirements,
restrictions on the issuance of such shares or any series
thereof, liquidation price and conversion rights. Also,
Procter & Gambles board of directors may fix such
other express terms as may be permitted or required by law.
Series A ESOP Convertible Class A Preferred
Stock. Procter & Gamble has designated
89,248,669 shares as Series A ESOP Convertible
Class A Preferred Stock. Procter &
Gambles Board has determined the terms of the
Series A ESOP Preferred Stock, which can only be held by an
employee stock ownership plan or other Procter & Gamble
benefit plan. Upon transfer of Series A ESOP Preferred
Stock to any other person, such transferred shares shall be
automatically converted into shares of common stock. According
to the Procter & Gamble Articles, each share of
Series A ESOP Preferred Stock has a cumulative dividend of
$0.5036075 per year and a liquidation price of
$6.82 per share (as adjusted for the stock splits on
October 20, 1989, May 15, 1992, August 22, 1997
and May 21, 2004), is redeemable by
Procter & Gamble or the holder, is convertible at the
option of the holder into one share of common stock and has
certain anti-dilution protections associated with the conversion
rights. Appropriate adjustments to dividends and liquidation
price will be made to give effect to any stock splits, stock
dividends or similar changes to the Series A ESOP Preferred
Stock. Moreover, Procter & Gambles board of
directors retains the right to declare dividends higher than
those called for by the Procter & Gamble Articles.
Procter & Gambles board of directors has
exercised this right so that the dividend rate for the
Series A ESOP Preferred Stock has been equal to the
dividend rate for common stock.
Series B ESOP Convertible Class A Preferred
Stock. Procter & Gamble has also designated
69,126,896 shares as Series B ESOP Convertible
Class A Preferred Stock. Procter &
Gambles Board has determined the terms of the
Series B ESOP Preferred Stock. According to the
Procter & Gamble Articles, each share of Series B
ESOP Preferred Stock has a cumulative dividend of
$1.022 per year and a liquidation price of $12.96 per
share (as adjusted for the stock splits on May 15, 1992,
August 22, 1997 and May 21, 2004), is redeemable by
Procter & Gamble or the holder under certain
circumstances, is convertible at the option of the holder into
one share of common stock and has certain anti-dilution
protections associated with the conversion rights. Appropriate
adjustments to dividends and liquidation price will be made to
give effect to any stock splits, stock dividends or similar
changes to the Series B ESOP Preferred Stock. Moreover,
Procter & Gambles board of directors retains the
right to declare dividends higher than those called for by the
Procter & Gamble Articles. Procter &
Gambles board of directors has not yet done so, however,
because the dividend rate required by the Procter &
Gamble Articles is roughly equal to the current rate for the
common stock.
Blank Check Preferred Stock. Under Procter &
Gambles certificate of incorporation, Procter &
Gambles board of directors has the authority, without
shareholder approval, to create one or more classes or series
within a class of preferred stock, to issue shares of preferred
stock in such class or series up to the maximum number of shares
of the relevant class or series of preferred stock authorized,
and to determine the preferences, rights, privileges and
restrictions of any such class or series, including the dividend
rights, voting rights, the rights and terms of redemption, the
rights and terms of conversion, liquidation preferences, the
number of shares constituting any such class or series and the
designation of such class or series.
Gillette Shareholder Rights Agreement
The following is a summary description of the rights issued
under the Gillette renewed rights agreement, as amended. The
following description of the Gillette renewed rights agreement
is subject to, and is qualified in its entirety by reference to,
the text of the Gillette renewed rights agreement, as amended,
and the description thereof, which are incorporated by reference
into this document. See Where You Can Find More
Information on
page .
IV-9
Chapter Four Certain Legal
Information
Gillette has entered into a renewed rights agreement under which
each Gillette shareholder has one right for each outstanding
share of Gillette common stock held. The following description
of the Gillette renewed rights agreement is subject to, and is
qualified in its entirety by reference to, the text of the
Gillette renewed rights agreement, as amended, and the
description thereof, which are incorporated by reference into
this joint proxy statement/ prospectus.
Each right entitles the holder to purchase one one-thousandth of
a share of Gillettes Series A Junior Participating
Preferred Stock, without par value, at a purchase price of $250.
The rights are attached to all common stock certificates
currently outstanding, and no separate certificates representing
them have been distributed. The rights will separate from the
Gillette common stock, and be represented by separate
certificates, upon the earlier of:
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10 business days following the date of any public announcement
that a person (such person is referred to as an acquiring
person), alone or together with a group of affiliated or
associated persons, but excluding particular persons and
entities, has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding Gillette
common stock, or |
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10 business days following the commencement of a tender offer or
an exchange offer that would result in an acquiring person
beneficially owning 15% or more of the outstanding Gillette
common stock. |
Each holder of a right not owned by an acquiring person or
related persons will be entitled to exercise the right and to
receive, upon exercise, Gillette common stock (or, in certain
circumstances, cash, other securities of Gillette or other
assets of Gillette) having a market value equal to two times the
exercise price of the right.
If at any time after a public announcement that a person has
become an acquiring person,
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Gillette is acquired in a merger or other business combination, |
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Gillette acquires a person in a merger or other business
combination where any or all of Gillette common stock is
exchanged for the stock or other securities of any other person
or cash or any other property, or |
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Gillette or one or more of its subsidiaries sells or otherwise
transfers 50% or more of the assets or earning power of Gillette
and its subsidiaries, taken as a whole, |
each holder of a right will have the right to receive, upon
exercise, common stock of the acquiring company having a market
value equal to two times the exercise price of the right.
At any time prior to the earlier of the close of business on the
10th business day following the date on which a person became an
acquiring person or the close of business on December 14,
2005, the Gillette board of directors may redeem the rights in
whole, but not in part, at a redemption price of $.01 per
right. Immediately upon the Gillette board of directors
ordering the redemption of the rights, the rights will terminate
and the holders of the rights will be entitled to receive only
this redemption price. Until a right is exercised, a holder of
rights will have no rights as a Gillette shareholder, including
the right to vote and to receive dividends, beyond its rights as
an existing shareholder.
In connection with the execution of the merger agreement,
Gillette and The Bank of New York, as successor rights agent,
entered into an amendment to the renewed rights agreement, dated
as of January 27, 2005, pursuant to which neither
Procter & Gamble nor Aquarium Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of
Procter & Gamble, nor any of their affiliates or
associates will be deemed to be an acquiring person or an
affiliate or associate of any acquiring person solely as a
result of the execution and delivery of the merger agreement or
the consummation of the merger or any of the other transactions
contemplated by the merger agreement. In addition, pursuant to
the amendment the execution of the merger agreement and the
consummation of the merger or any of the
IV-10
Chapter Four Certain Legal
Information
other transactions contemplated by the merger agreement shall
not be deemed to trigger the separation or exercise of the
rights.
Transfer Agent and Registrar
The Procter & Gamble Companys Shareholder
Services Department is the transfer agent for Procter &
Gamble common stock. The Bank of New York serves as registrar.
LEGAL MATTERS
The validity of the Procter & Gamble common stock to be
issued to Gillette shareholders in the merger will be passed
upon by Cadwalader, Wickersham & Taft LLP, counsel to
Procter & Gamble. It is a condition to the completion
of the merger that each of Procter & Gamble and
Gillette receive an opinion from their respective counsel with
respect to the tax treatment of the merger.
EXPERTS
The consolidated financial statements of Procter &
Gamble and subsidiaries as of June 30, 2004 and 2003, and
for each of the years in the three-year period ended
June 30, 2004, incorporated in this joint proxy statement/
prospectus in this Registration Statement on Form S-4 by
reference from the Procter & Gamble Form 8-K filed
March 14, 2005, have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Gillette and
subsidiaries as of December 31, 2003 and 2004, and for each
of the years in the three-year period ended December 31,
2004, have been incorporated by reference in this joint proxy
statement/ prospectus from the Gillette Annual Report for the
year ended December 31, 2004 on Form 10-K filed March
14, 2005, in reliance upon the report of KPMG LLP, independent
registered public accountants, also incorporated by reference in
this joint proxy statement/ prospectus upon the authority of
said firm as experts in accounting and auditing.
IV-11
Chapter Five Additional Information for
Shareholders
CHAPTER FIVE:
ADDITIONAL INFORMATION FOR SHAREHOLDERS
FUTURE SHAREHOLDER PROPOSALS
Procter & Gamble
Pursuant to regulations issued by the SEC, to be considered for
inclusion in Procter & Gambles proxy statement
for presentation at Procter & Gambles 2005 annual
meeting of shareholders, all shareholder proposals must be
received by Procter & Gamble on or before the close of
business on Friday, April 29, 2005. If a shareholder
notifies Procter & Gamble after July 15, 2005 of
an intent to present a proposal at the 2005 annual meeting of
shareholders, Procter & Gamble will have the right to
exercise its discretionary voting authority with respect to such
proposal without including information regarding such proposal
in its proxy materials.
Procter & Gambles Governance &
Nominating Committee will consider shareholder recommendations
for candidates for the board, which should be submitted to:
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Chairman of the Governance & Nominating Committee |
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The Procter & Gamble Company |
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c/o Secretary |
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One Procter & Gamble Plaza |
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Cincinnati, OH 45202-3315 |
Shareholder recommendations should include the name of the
candidate, as well as relevant biographical information. The
committees and board of directors minimum
qualifications and preferred, specific qualities and skills
required for Directors are set forth in Article II,
Sections B through E of the Companys Corporate
Governance Guidelines. The committee considers all candidates
using these criteria, regardless of the source of the
recommendation. The committees process for evaluating
candidates includes the considerations set forth in
Article II, Section B of the Committees charter.
After initial screening for minimum qualifications, the
committee determines appropriate next steps, including requests
for additional information, reference checks and interviews with
potential candidates. In addition to shareholder
recommendations, the committee also relies on recommendations
from current directors, Company personnel and others. From time
to time, the committee may engage the services of outside search
firms to help identify candidates.
Procter & Gambles annual meeting of shareholders
is generally held on the second Tuesday of October. It is
anticipated that the 2005 annual meeting of shareholders will be
held on Tuesday, October 11, 2005.
The Procter & Gamble board of directors is not aware of
any matters that are expected to come before the special meeting
other than those referred to in this joint proxy statement/
prospectus. If any other matter should come before the special
meeting, the persons named in the accompanying proxy intend to
vote the proxies in accordance with their best judgment.
The chairman of the meeting may refuse to allow the transaction
of any business not presented beforehand, or to acknowledge the
nomination of any person not made in compliance with the
foregoing procedures.
Gillette
Gillette will hold its 2005 annual meeting of shareholders
before the special meeting. In light of the expected timing of
the effectiveness of the merger, Gillette does not currently
expect to hold an annual meeting of its shareholders in 2006.
V-1
Chapter Five Additional Information for
Shareholders
If Gillette holds an annual meeting of shareholders in 2006, any
shareholder who wishes to propose a matter for consideration at
such annual meeting must submit the proposal in writing to The
Gillette Company, Prudential Tower Building, 48th Floor, Boston,
MA 02199, Attention: Office of the Secretary. To be eligible
under Rule 14a-8 of the Exchange Act for inclusion in the
annual meeting proxy statement, a proposal must be received no
later than the 120th calendar day before the anniversary of the
date on which the 2005 annual meeting proxy statement was
released to shareholders (or if the annual meeting date has
changed by more than 30 days, a reasonable time before
Gillette begins to print and mail its proxy statement).
In addition to these SEC rules, Gillettes Bylaws require
advance notice of business to be brought before a
shareholders annual meeting, including nominations of
persons for election as directors. To be timely, a
shareholders notice to Gillettes secretary must be
received at least 90 days but not more than 120 days
before the anniversary date of the 2005 annual meeting (or if
the 2006 annual meeting is called for a date that is within
30 days before or after such anniversary date, notice must
be received not more than 120 days prior to the 2006 annual
meeting and not later than the close of business on the 10th day
following the earlier of the day on which notice of the date of
the 2006 annual meeting was mailed or public announcement of the
date of the 2006 annual meeting was made). Any such proposal
should be submitted to The Gillette Company, Prudential Tower
Building, 48th Floor, Boston, MA 02199, Attention: Office of the
Secretary.
WHERE YOU CAN FIND MORE INFORMATION
Procter & Gamble and Gillette file annual, quarterly
and special reports, proxy statements and other information with
the SEC. You may read and copy any reports, statements or other
information filed at the SECs public reference rooms
located 450 Fifth Street, N.W., Washington D.C. 20549 and
at Northwest Atrium Center, 5000 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, U.S.A. Please
call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Procter & Gambles and
Gillettes SEC filings are also available to the public
from commercial document retrieval services and at the web site
maintained by the SEC at www.sec.gov.
Procter & Gamble has filed a registration statement on
Form S-4 to register with the SEC the Procter &
Gamble common stock to be issued to Gillette common shareholders
upon completion of the merger. This joint proxy statement/
prospectus is a part of that registration statement and
constitutes a prospectus of Procter & Gamble in
addition to being a proxy statement of Procter & Gamble
and Gillette for their respective meetings. As allowed by SEC
rules, this joint proxy statement/ prospectus does not contain
all the information you can find in the registration statement
or the exhibits to the registration statement.
The SEC allows the companies to incorporate by
reference information into this joint proxy statement/
prospectus, which means that important information can be
disclosed to you by referring you to another document filed
separately with the SEC. The information incorporated by
reference is deemed to be part of this joint proxy statement/
prospectus, except for any information superseded by information
in, or incorporated by reference in, this joint proxy statement/
prospectus. This joint proxy statement/ prospectus incorporates
by reference the documents set forth below that have previously
been filed with the SEC. These documents contain important
information about our companies and their finances.
V-2
Chapter Five Additional Information for
Shareholders
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Procter & Gamble SEC Filings |
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(File No. 001-00434) |
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Period |
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Annual Report on Form 10-K
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Fiscal Year ended June 30, 2004 as conformed to
organizational and segment measurement changes contained in the
Procter & Gamble Form 8-K filed October 22, 2004, and as
conformed to present the reclassification of certain investments
from cash and cash equivalents to investment securities as
contained in the Proctor & Gamble Form 8-K filed March 14,
2005
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Quarterly Reports on Form 10-Q
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Quarters ended September 30, 2004 and December 31, 2004
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Current Reports on Form 8-K
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Filed on July 14, 2004, August 2, 2004,
September 1, 2004, September 9, 2004, October 13,
2004, October 22, 2004, October 27, 2004,
December 8, 2004, December 15, 2004, January 11,
2005, January 28, 2005, January 28, 2005, and
March 14, 2005
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Proxy Statement on Schedule 14A
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Filed on August 27, 2004
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Gillette SEC Filings (File No. 001-00922) |
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Period |
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Annual Report on Form 10-K
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Fiscal Year ended December 31, 2004
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Current Reports on Form 8-K
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Filed on January 28, 2005 and February 3, 2005
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Proxy Statement on Schedule 14A
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Filed on April 12, 2004
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Procter & Gamble and Gillette are also incorporating by
reference additional documents filed with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this joint proxy statement/ prospectus and
the date of the meetings.
All information contained or incorporated by reference in this
joint proxy statement/ prospectus relating to Procter &
Gamble has been supplied by Procter & Gamble, and all
information about Gillette has been supplied by Gillette.
If you are a shareholder, you may have been sent some of the
documents incorporated by reference, but you can obtain any of
them through the companies or the SEC. Documents incorporated by
reference are available without charge, excluding all exhibits
unless the exhibits have been specifically incorporated by
reference as an exhibit in this joint proxy statement/
prospectus. Shareholders may obtain documents incorporated by
reference in this joint proxy statement/ prospectus by
requesting them in writing or by telephone from the appropriate
party at the following address:
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The Procter & Gamble Company |
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One Procter & Gamble Plaza |
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Cincinnati, OH 45202-5572 |
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Attention: Shareholder Services |
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(800) 764-7483 |
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The Gillette Company |
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Prudential Tower Building, 48th Floor |
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Boston, MA 02199 |
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Attention: Office of the Secretary |
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(617) 421-7000 |
V-3
Chapter Five Additional Information for
Shareholders
If you are a Procter & Gamble shareholder and would
like to request documents from Procter & Gamble, please
do so by
[ ],
2005 to receive them before the Procter & Gamble
special meeting. If you are a Gillette shareholder and would
like to request documents from Gillette, please do so by
[ ],
2005 to receive them before the Gillette special meeting.
You can also get more information by visiting Procter &
Gambles web site at www.pg.com and Gillettes web
site at www.gillette.com. Web site materials are not part of
this joint proxy statement/ prospectus.
You should rely only on the information contained or
incorporated by reference in this joint proxy statement/
prospectus to vote on the proposals to Procter &
Gambles and Gillettes shareholders in connection
with the merger, as the case may be. The companies have not
authorized anyone to provide you with information that is
different from what is contained in this joint proxy statement/
prospectus. This joint proxy statement/ prospectus is dated
[ ],
2005. You should not assume that the information contained in
this joint proxy statement/ prospectus is accurate as of any
date other than such date, and neither the mailing of this joint
proxy statement/ prospectus to shareholders nor the issuance of
Procter & Gamble common stock in the merger shall
create any implication to the contrary.
V-4
Chapter Five Additional Information for
Shareholders
ANNEX A
AGREEMENT AND PLAN OF MERGER
Dated as of January 27, 2005
among
The Procter & Gamble Company,
Aquarium Acquisition Corp.
and
The Gillette Company
TABLE OF CONTENTS
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Page | |
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ARTICLE 1
THE MERGER; CERTAIN RELATED MATTERS |
Section 1.01
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The Merger |
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A-1 |
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Section 1.02
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Closing |
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A-1 |
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Section 1.03
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Effective Time |
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A-1 |
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Section 1.04
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Effects of the Merger |
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A-2 |
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Section 1.05
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Certificate of Incorporation |
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A-2 |
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Section 1.06
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Bylaws |
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A-2 |
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Section 1.07
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Officers and Directors |
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A-2 |
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Section 1.08
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Effect on Capital Stock |
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A-2 |
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Section 1.09
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Company Stock Options and Other Equity-based Awards |
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A-2 |
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Section 1.10
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Certain Adjustments |
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A-4 |
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ARTICLE 2
EXCHANGE OF SHARES |
Section 2.01
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Exchange Fund |
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A-4 |
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Section 2.02
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Exchange Procedures |
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A-4 |
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Section 2.03
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Distributions with Respect to Unexchanged Shares |
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A-5 |
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Section 2.04
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No Further Ownership Rights in Company Common Stock |
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A-5 |
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Section 2.05
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No Fractional Shares of Parent Common Stock |
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A-5 |
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Section 2.06
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Termination of Exchange Fund |
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A-5 |
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Section 2.07
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No Liability |
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A-5 |
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Section 2.08
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Investment of the Exchange Fund |
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A-6 |
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Section 2.09
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Lost Certificates |
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A-6 |
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Section 2.10
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Withholding Rights |
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A-6 |
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Section 2.11
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Further Assurances |
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A-6 |
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Section 2.12
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Stock Transfer Books |
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A-6 |
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Section 2.13
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Affiliates |
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A-6 |
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES |
Section 3.01
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Representations and Warranties of Parent |
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A-7 |
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Section 3.02
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Representations and Warranties of the Company |
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A-12 |
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Section 3.03
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Representations and Warranties of Parent and Merger Sub |
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A-20 |
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ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS |
Section 4.01
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Covenants of Parent |
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A-20 |
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Section 4.02
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Covenants of the Company |
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A-21 |
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Section 4.03
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Governmental Filings |
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A-24 |
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Section 4.04
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Control of Other Partys Business |
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A-24 |
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ARTICLE 5
ADDITIONAL AGREEMENTS |
Section 5.01
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Preparation of Proxy Statement; Stockholders Meetings |
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A-24 |
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Section 5.02
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Access to Information/ Employees |
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A-26 |
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A-i
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Page | |
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Section 5.03
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Commercially Reasonable Efforts |
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A-27 |
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Section 5.04
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Acquisition Proposals |
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A-28 |
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Section 5.05
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Fees And Expenses |
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A-29 |
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Section 5.06
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Directors And Officers Indemnification And Insurance |
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A-29 |
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Section 5.07
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Public Announcements |
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A-30 |
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Section 5.08
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Accountants Letters |
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A-30 |
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Section 5.09
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Listing of Shares of Parent Common Stock |
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A-30 |
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Section 5.10
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Dividends |
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A-31 |
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Section 5.11
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Affiliates |
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A-31 |
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Section 5.12
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Section 16 Matters |
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A-32 |
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Section 5.13
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Tax Treatment |
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A-32 |
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Section 5.14
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Notification of Certain Matters |
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A-32 |
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Section 5.15
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Employee Matters |
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A-32 |
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Section 5.16
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Director Resignations |
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A-33 |
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Section 5.17
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Appraisal Rights |
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A-33 |
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ARTICLE 6
CONDITIONS PRECEDENT |
Section 6.01
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Conditions to Each Partys Obligation to Effect the Merger |
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A-34 |
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Section 6.02
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Additional Conditions to Obligations of Parent and Merger Sub |
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A-34 |
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Section 6.03
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Additional Conditions to Obligations of the Company |
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A-35 |
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ARTICLE 7
TERMINATION AND AMENDMENT |
Section 7.01
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General |
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A-36 |
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Section 7.02
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Obligations in Event of Termination |
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A-37 |
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Section 7.03
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Amendment |
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A-38 |
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Section 7.04
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Extension; Waiver |
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A-38 |
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ARTICLE 8
GENERAL PROVISIONS |
Section 8.01
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Non-Survival of Representations, Warranties and Agreements |
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A-38 |
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Section 8.02
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Notices |
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A-38 |
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Section 8.03
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Interpretation |
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A-39 |
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Section 8.04
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Counterparts |
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A-39 |
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Section 8.05
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Entire Agreement; No Third Party Beneficiaries |
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A-39 |
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Section 8.06
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Governing Law |
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A-40 |
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Section 8.07
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Severability |
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A-40 |
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Section 8.08
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Assignment |
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A-40 |
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Section 8.09
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Submission To Jurisdiction; Waivers |
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A-40 |
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Section 8.10
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Enforcement |
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A-40 |
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Section 8.11
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Definitions |
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A-40 |
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A-ii
LIST OF EXHIBITS
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Exhibit |
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Title |
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5 |
.11 |
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Form of Affiliate Letter |
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6 |
.02(c)(1) |
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Form of Tax Opinion of Cadwalader, Wickersham & Taft LLP |
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6 |
.02(c)(2) |
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Form of Parent Tax Representations Letter to Cadwalader,
Wickersham & Taft LLP |
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6 |
.02(c)(3) |
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Form of Company Tax Representations Letter to Cadwalader,
Wickersham & Taft LLP |
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6 |
.03(c)(1) |
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Form of Tax Opinion of Davis Polk & Wardwell |
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6 |
.03(c)(2) |
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Form of Parent Tax Representations Letter to Davis
Polk & Wardwell |
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6 |
.03(c)(3) |
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Form of Company Tax Representations Letter to Davis
Polk & Wardwell |
A-iii
AGREEMENT AND PLAN OF MERGER, dated as of January 27, 2005
(this Agreement), among The
Procter & Gamble Company, an Ohio corporation
(Parent), Aquarium Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Parent
(Merger Sub), and The Gillette Company, a
Delaware corporation (the Company and
collectively with Parent and Merger Sub, the
parties).
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of the Company and
Parent deem it advisable and in the best interests of each
corporation and its respective stockholders that the Company and
Parent engage in a business combination in order to advance the
long-term strategic business interests of the Company and Parent;
WHEREAS, the combination of the Company and Parent shall be
effected by the terms of this Agreement through a merger as
outlined below (the Merger);
WHEREAS, in furtherance thereof, the respective Boards of
Directors of the Company and Parent have approved the Merger,
upon the terms and subject to the conditions set forth in this
Agreement, pursuant to which each share of common stock, par
value $1.00 per share, of the Company (Company
Common Stock) issued and outstanding immediately prior
to the Effective Time (as defined in Section 1.03), other
than shares owned or held directly or indirectly by Parent or
directly or indirectly by the Company, will be converted into
the right to receive shares of common stock, without par value,
of Parent (Parent Common Stock) as set forth
in Section 1.08; and
WHEREAS, for Federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code), and the regulations
promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth in this Agreement, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1
The Merger; Certain
Related Matters
Section 1.01. The
Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the DGCL), Merger
Sub shall be merged with and into the Company at the Effective
Time. Following the Merger, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the
surviving corporation (the Surviving
Corporation).
Section 1.02. Closing.
Upon the terms and subject to the conditions set forth in
Article 6, the closing of the Merger (the
Closing) will take place on the first
Business Day after the satisfaction or waiver (subject to
applicable law) of the conditions (excluding conditions that, by
their nature, cannot be satisfied until the Closing Date, but
subject to the fulfillment or waiver of those conditions at the
Closing) set forth in Article 6, unless this Agreement has
been previously terminated pursuant to its terms or unless
another time or date is agreed to in writing by the parties (the
actual date of the Closing being referred to herein as the
Closing Date). The Closing shall be held at
the offices of Cadwalader, Wickersham & Taft LLP, One
World Financial Center, New York, New York 10281, unless another
place is agreed to in writing by the parties.
Section 1.03. Effective
Time. At the Closing the parties shall file a certificate of
merger (the Certificate of Merger) in such
form as is required by and executed in accordance with the
relevant provisions of the DGCL. The Merger shall become
effective at such time as the Certificate of Merger is duly
filed with the Delaware Secretary of State or at such subsequent
time as Parent and the Company shall agree and as shall be
specified in the Certificate of Merger (the time the Merger
becomes effective being the Effective Time).
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Section 1.04. Effects of
the Merger. At and after the Effective Time, the Merger will
have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall be vested in the
Surviving Corporation, and all debts, liabilities and duties of
the Company and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
Section 1.05. Certificate
of Incorporation. The certificate of incorporation of the
Company, as in effect immediately prior to the Effective Time,
shall be the certificate of incorporation of the Surviving
Corporation, until thereafter changed or amended as provided
therein or by applicable law.
Section 1.06. Bylaws.
The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable law.
Section 1.07. Officers and
Directors. From and after the Effective Time, until
successors are duly elected or appointed and qualified in
accordance with applicable law, (i) the directors of Merger
Sub at the Effective Time shall be the directors of the
Surviving Corporation and (ii) the officers of the Company
at the Effective Time shall be the officers of the Surviving
Corporation.
Section 1.08. Effect on
Capital Stock.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, each share
of Company Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares of Company Common Stock
owned by Parent or Merger Sub or owned by the Company (other
than those held by the Company in a fiduciary or representative
capacity), all of which shall be canceled as provided in
Section 1.08(c)), together with the associated Company
Rights (as defined in Section 3.02(b)) (the
Shares), shall be converted into the right to
receive 0.975 shares (the Exchange
Ratio) of validly issued, fully paid and
non-assessable Parent Common Stock (the Merger
Consideration).
(b) As a result of the Merger and without any action on the
part of the holders thereof, at the Effective Time, all shares
of Company Common Stock (together with the associated Company
Rights) shall cease to be outstanding and shall be canceled and
retired and shall cease to exist, and each holder of a
certificate or certificates which immediately prior to the
Effective Time represented any such shares of Company Common
Stock shall thereafter cease to have any rights with respect to
such shares of Company Common Stock (together with the
associated Company Rights), except as provided herein or by law.
(c) Each share of Company Common Stock issued and owned by
Parent, Merger Sub or any other wholly-owned Subsidiary of
Parent or owned by the Company (other than those held by the
Company in a fiduciary or representative capacity) at the
Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be canceled and retired and no stock of
Parent or other consideration shall be delivered in exchange
therefor.
(d) At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, each share
of common stock, par value $.01 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time,
shall be converted into one validly issued, fully paid and
non-assessable share of common stock, par value $1.00 per
share, of the Surviving Corporation.
Section 1.09. Company Stock
Options and Other Equity-based Awards.
(a) Prior to the Effective Time, the Company shall amend
the Company Stock Option Plans (as defined in
Section 3.02(b)), to provide that (i) each person who
holds a Company Stock Option (as defined in
Section 3.02(b)) at the Effective Time agrees prior to the
Effective Time to be bound by the terms and conditions that
parallel the terms and conditions of Parents 2001 Stock
and Incentive Compensation Plan with respect to non-compete
agreements prohibiting such holders competing with Parent
and the Company but only with respect to (A) any business
conducted by the Company immediately prior to the Effective Time
or (B) any business of Parent or an Affiliate in which the
holder was employed from the Effective Time through the
termination of the holders employment; (ii) with
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respect to each Company Stock Option, a termination of
employment for Good Reason after the Effective Time shall be
treated for all purposes under the Company Stock Option Plans
the same as (A) a Special Separation, or
(B) in the case of a retirement eligible holder under the
Companys Benefit Plans, as a Retirement, in
each case under Parents 2001 Stock and Incentive
Compensation Plan; and (iii) each holder of a Company Stock
Option shall enter into an agreement with the Company (an
Option Agreement) pursuant to which Company
and each such holder shall agree to the foregoing.
(b) Prior to the Effective Time, the Company shall amend
the Company Stock Option Plans to provide each Company Stock
Option that was granted pursuant to the Company Stock Option
Plans prior to the Effective Time (other than Company Stock
Options granted pursuant to the terms of Section 4.02(c),
the vesting and exercisability of which shall not accelerate
prior to or upon the Effective Time) and which remains
outstanding immediately prior to the Effective Time (whether or
not previously vested and exercisable) shall be vested and
exercisable effective immediately prior to the Effective Time,
and that pursuant to a procedure to be implemented by the
Company, such holder may exercise such Option immediately prior
to the Effective Time, in whole or in part, and in respect
thereof shall be entitled to receive, at the holders
election, either (i) the Merger Consideration with respect
to the Shares issuable as a result of such exercise (the
Merger Shares) or (ii) a cash payment
equal to the product of (A) the excess (if any) of the per
share value of the Merger Shares over the per share exercise
price, multiplied by (B) the number of Shares with respect
to which a Company Stock option is exercised, in each case
subject to applicable withholding taxes.
(c) Each Company Stock Option which remains outstanding at
the Effective Time shall cease to represent a right to acquire
shares of Company Common Stock and shall be converted, at the
Effective Time, into an option to acquire, on the same terms and
conditions as were applicable under the Company Stock Option
(but taking into account any changes thereto, provided for in
the Company Stock Option Plans or in such option by reason of
this Agreement or the transactions contemplated hereby), that
number of shares of Parent Common Stock determined by
multiplying the number of shares of Company Common Stock subject
to such Company Stock Option by the Exchange Ratio, rounded, if
necessary, to the nearest whole share of Parent Common Stock, at
a price per share (rounded to the nearest one-hundredth of a
cent) equal to the per share exercise price specified in such
Company Stock Option divided by the Exchange Ratio; provided,
however, that in the case of any Company Stock Option to
which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code, the option
price, the number of shares subject to such option and, except
to the extent otherwise required by this Section 1.09, the
terms and conditions of exercise of such option shall be
determined in a manner consistent with the requirements of
Section 424(a) of the Code. On or prior to the Effective
Time, the Company will take all actions necessary such that all
Company Stock Options outstanding at the Effective Time under
the Company Stock Option Plans are treated in accordance with
the immediately preceding sentences.
(d) Subject to the execution and delivery to Parent of the
Option Agreement prior to the Effective Time, effective at the
Effective Time Parent shall assume, on the terms and conditions
set forth in this Section 1.09, each Company Stock Option
Plan and each Company Stock Option granted thereunder that was
not exercised prior to the Effective Time. To the extent
permitted by law but not in derogation of the provisions of this
Section 1.09, Parent shall take such reasonable steps as
may be necessary to cause the Company Stock Options which
qualified under Section 422 of Code as incentive stock
options prior to the Effective Time to continue to qualify as
incentive stock options of Parent after the Effective Time.
(e) Prior to the Closing, Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of
shares of Parent Common Stock for delivery upon exercise of
Company Stock Options or in connection with restricted shares or
in connection with the settlement of stock accounts in
accordance with this Section 1.09. Promptly after the
Effective Time, but no later than five (5) Business Days
after the Effective Time, Parent shall file a registration
statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to
the shares of Parent Common Stock subject to such options or
restricted shares or stock accounts and shall use commercially
reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain
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the current status of the prospectus or prospectuses contained
therein) for so long as such options, restricted shares or stock
accounts remain outstanding or for so long as such registration
statement is required with respect to any other Company Benefit
Plan. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), where applicable,
Parent shall administer the Company Stock Option Plans in a
manner consistent with the exemptions provided by
Rule 16b-3 promulgated under the Exchange Act.
Section 1.10. Certain
Adjustments. If, between the date of this Agreement and the
Effective Time, the outstanding Parent Common Stock or Company
Common Stock shall have been changed into a different number of
shares or different class by reason of any reclassification,
recapitalization, stock split, split-up, combination or exchange
of shares or a stock dividend or dividend payable in any other
securities shall be declared with a record date within such
period, or any similar event shall have occurred (other than
exchange of Company Stock Options or Parent Stock Options), the
Exchange Ratio shall be appropriately adjusted to provide to the
holders of Company Common Stock the same economic effect as
contemplated by this Agreement prior to such event.
ARTICLE 2
Exchange Of Shares
Section 2.01. Exchange
Fund. Prior to the Effective Time, Parent shall appoint a
commercial bank or trust company to act as exchange agent
hereunder for the purpose of exchanging Shares for the Merger
Consideration (the Exchange Agent). At or
prior to the Effective Time, Parent shall deposit with the
Exchange Agent, in trust for the benefit of holders of shares of
Company Common Stock, certificates representing the Parent
Common Stock issuable pursuant to Section 1.08. Parent
agrees to make available directly or indirectly to the Exchange
Agent from time to time as needed, cash sufficient to pay cash
in lieu of fractional shares pursuant to Section 2.05 and
any dividends and other distributions pursuant to
Section 2.03. Any cash and certificates of Parent Common
Stock deposited with the Exchange Agent shall hereinafter be
referred to as the Exchange Fund.
Section 2.02. Exchange
Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each
holder of Shares (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and
title to the Shares shall pass, only upon proper delivery of the
Shares to the Exchange Agent, and which letter shall be in
customary form and have such other provisions as Parent may
reasonably specify (such letter to be reasonably acceptable to
the Company prior to the Effective Time) and
(ii) instructions for effecting the surrender of such
Shares in exchange for the Merger Consideration. Upon surrender
of the Shares to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such Shares
shall be entitled to receive in exchange therefor (A) one
or more shares of Parent Common Stock (which shall be in
uncertificated book-entry form unless a physical certificate is
requested by such holder) representing, in the aggregate, the
whole number of shares of Parent Common Stock that such holder
has the right to receive pursuant to Section 1.08 (after
taking into account all shares of Company Common Stock then held
by such holder) and (B) a check in the amount equal to the
cash that such holder has the right to receive pursuant to the
provisions of this Article 2, consisting of cash in lieu of
any fractional shares of Parent Common Stock pursuant to
Section 2.05 and dividends and other distributions pursuant
to Section 2.03 (Cash Payments). No
interest will be paid or will accrue on any Cash Payments. In
the event of a transfer of ownership of Company Common Stock
which is not registered in the transfer records of the Company,
the Merger Consideration and any Cash Payments to which such
holder is entitled, may be issued with respect to such Company
Common Stock to such a transferee if the Shares are presented to
the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
A-4
Section 2.03. Distributions
with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of Parent
Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Shares with respect
to the shares of Parent Common Stock that such holder would be
entitled to receive upon surrender of such Shares and no cash
payment in lieu of fractional shares of Parent Common Stock
shall be paid to any such holder pursuant to Section 2.05
until such holder shall surrender such Shares in accordance with
Section 2.02. Subject to the effect of applicable laws,
following surrender of any such Shares, there shall be paid to
such holder of shares of Parent Common Stock issuable in
exchange therefor, without interest, (a) promptly after the
time of such surrender, the amount of any cash payable in lieu
of fractional shares of Parent Common Stock to which such holder
is entitled pursuant to Section 2.05 and the amount of
dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock, and (b) at the appropriate
payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender
payable with respect to such shares of Parent Common Stock.
Section 2.04. No Further
Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued and cash paid upon conversion of
shares of Company Common Stock in accordance with the terms of
Article 1 and this Article 2 (including any cash paid
pursuant to Section 2.03 or 2.05) shall be deemed to have
been issued or paid in full satisfaction of all rights
pertaining to such shares of Company Common Stock.
Section 2.05. No Fractional
Shares of Parent Common Stock. (a) No certificates or
scrip or shares of Parent Common Stock representing fractional
shares of Parent Common Stock or book-entry credit of the same
shall be issued upon the surrender for exchange of the Shares
and such fractional share interests will not entitle the owner
thereof to vote or to have any rights of a stockholder of Parent
or a holder of shares of Parent Common Stock.
(b) Notwithstanding any other provision of this Agreement,
each holder of shares of Company Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive
a fraction of a share of Parent Common Stock (after taking into
account all Shares delivered by such holder) shall receive, in
lieu thereof, cash (without interest) in an amount equal to the
product of (i) such fractional part of a share of Parent
Common Stock multiplied by (ii) the closing price for a
share of Parent Common Stock on the New York Stock Exchange,
Inc. (NYSE) Composite Transactions Tape on
the Closing Date. Such payment of cash consideration in lieu of
fractional shares of Parent Common Stock is not expected to
exceed, in the aggregate, 1% of the total merger consideration.
(c) As promptly as practicable after the determination of
the amount of cash, if any, to be paid to holders of fractional
interests, the Exchange Agent shall so notify Parent, and Parent
shall deposit or cause the Surviving Corporation to deposit such
amount with the Exchange Agent and shall cause the Exchange
Agent to forward payments to such holders of fractional
interests subject to and in accordance with the terms hereof.
Section 2.06. Termination
of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Shares for six months
after the Effective Time shall be delivered to Parent, and any
holders of the Shares who have not theretofore complied with
this Article 2 shall thereafter look only to Parent for the
Merger Consideration with respect to such Shares (including any
Cash Payments). Any such portion of the Exchange Fund remaining
unclaimed by holders of shares of Company Common Stock
five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise
escheat to or become property of any Governmental Entity (as
defined in Section 3.01(c)(iii)) shall, to the extent
permitted by law, become the property of the Surviving
Corporation free and clear of any claims or interest of any
Person previously entitled thereto.
Section 2.07. No
Liability. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to
any Person in respect of any Merger Consideration from the
Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
A-5
Section 2.08. Investment of
the Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund as directed by Parent on a daily
basis; provided, that no gain or loss thereon shall
affect the amounts payable to the Company stockholders pursuant
to Article 1 and the other provisions of this
Article 2. Any interest and other income resulting from
such investments shall promptly be paid to Parent.
Section 2.09. Lost
Certificates. If any certificate for Shares shall have been
lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate to be lost,
stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with
respect to such certificate, the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed certificate the
applicable Merger Consideration (including any Cash Payments)
with respect to the shares of the Company Common Stock formerly
represented thereby.
Section 2.10. Withholding
Rights. Each of the Surviving Corporation and Parent shall
be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock, Company Stock Options or any
other equity rights in the Company such amounts as it is
required to deduct and withhold with respect to the making of
such payment under the Code and the rules and regulations
promulgated thereunder, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by
the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of
Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as
the case may be.
Section 2.11. Further
Assurances. After the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or
Merger Sub, any deeds, bills of sale, assignments or assurances
and to take and do, in the name and on behalf of the Company or
Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any
and all right, title and interest in, to and under any of the
rights, properties or assets acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the
Merger.
Section 2.12. Stock
Transfer Books. The stock transfer books of the Company
shall be closed immediately upon the Effective Time and there
shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company.
On or after the Effective Time, any Shares presented to the
Exchange Agent or Parent for any reason shall be converted into
the Merger Consideration with respect to the shares of Company
Common Stock formerly represented thereby (including any cash in
lieu of fractional shares of Parent Common Stock to which the
holders thereof are entitled pursuant to Section 2.05) and
any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 2.03.
Section 2.13. Affiliates.
Notwithstanding anything to the contrary herein, to the fullest
extent permitted by law, no certificates representing shares of
Parent Common Stock or cash shall be delivered to a Person who
is an affiliate of the Company in accordance with
Section 5.11 until such Person has executed and delivered
an Affiliate Agreement (as defined in Section 5.11) to
Parent.
A-6
ARTICLE 3
Representations And
Warranties
Section 3.01. Representations
and Warranties of Parent. Except as set forth in the Parent
disclosure schedule delivered by Parent to the Company prior to
the execution of this Agreement (the Parent Disclosure
Schedule), Parent represents and warrants to the
Company as follows:
(a) Organization, Standing and Power; Subsidiaries.
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(i) Each of Parent and each of its Subsidiaries (as defined
in Section 8.11) is duly organized, validly existing and in
good standing under the laws of its jurisdiction of
incorporation or organization, has the requisite corporate (or
similar) power and authority to own, lease and operate its
properties and to carry on its business as now being conducted,
except where the failures to be so organized, existing or in
good standing or to have such power and authority, individually
or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect (as defined in Section 8.11) on
Parent, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes
such qualification necessary except where the failures so to
qualify or to be in good standing, individually or in the
aggregate, would not reasonably be expected to have a Material
Adverse Effect on Parent. The copies of the amended articles of
incorporation and regulations of Parent which were previously
furnished or made available to the Company are true, complete
and correct copies of such documents as in effect on the date of
this Agreement. |
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(ii) Exhibit 21 to Parents Annual Report on
Form 10-K for the year ended June 30, 2004 includes
all the Subsidiaries of Parent which as of the date thereof were
Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of the SEC). All the outstanding shares of
capital stock of, or other equity interests in, each such
Significant Subsidiary have been validly issued and are fully
paid and non-assessable and are, except as set forth in
Exhibit 21, owned directly or indirectly by Parent, free
and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever
(collectively, Liens) (including any
restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests), except for
restrictions imposed by applicable laws. |
(b) Capital Structure.
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(i) As of December 31, 2004, the authorized capital
stock of Parent consisted of (A) 10,000,000,000 shares
of Parent Common Stock of which 2,522,583,573 shares were
outstanding and 453,866,904 shares were held in the
treasury of Parent, (B) 600,000,000 shares of
Class A Preferred Stock, without par value, of which
(i) 89,248,669 shares have been designated
Series A ESOP Convertible Class A Preferred Stock, all
of which were outstanding, and (ii) 69,126,896 shares
have been designated Series B ESOP Convertible Class A
Preferred Stock, all of which were outstanding, and
(C) 200,000,000 shares of Class B Preferred
Stock, without par value, none of which are outstanding. All
issued and outstanding shares of the capital stock of Parent
are, and when shares of Parent Common Stock are issued in the
Merger or upon exercise of stock options converted in the Merger
pursuant to Section 1.09, such shares will be, duly
authorized, validly issued, fully paid and non-assessable and
free of any preemptive rights. There were outstanding as of
December 31, 2004, no options, warrants or other rights to
acquire capital stock from Parent other than options, restricted
stock and other rights to acquire capital stock from Parent
representing in the aggregate the right to
purchase 270,623,943 shares of Parent Common Stock
(collectively, the Parent Stock Options)
under Parents 2001 Stock and Incentive Compensation Plan,
Parents 1992 Stock Plan, Parents 1993 Non-Employee
Directors Stock Plan, Parents Future Shares Plan and
Parents 2003 Non-Employee Directors Stock Plan
(collectively, the Parent Stock Option Plans). |
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(ii) No bonds, debentures, notes or other indebtedness of
Parent having the right to vote on any matters on which holders
of capital stock of Parent may vote (Parent Voting
Debt) are issued or outstanding. |
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(iii) Except as disclosed in the Parent SEC Reports filed
prior to the date hereof or as otherwise set forth in this
Section 3.01(b) and as contemplated by Section 1.08
and Section 1.09, as of January 24, 2005, there are no
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which
Parent or any of its Significant Subsidiaries is a party or by
which any of them is bound obligating Parent or any of its
Significant Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock
or other voting securities of Parent or any of its Significant
Subsidiaries or obligating Parent or any of its Significant
Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except as disclosed in the Parent
SEC Reports filed prior to the date hereof, as of the date of
this Agreement, there are no outstanding obligations of Parent
or any of its Significant Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Parent or any
of its Significant Subsidiaries. Except as disclosed in the
Parent SEC Reports filed prior to the date hereof, there are not
outstanding any stock-appreciation rights, security-based
performance units, phantom stock or other security
rights or other agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any Person
is or may be entitled to receive any payment or other value
based on the revenues, earnings or financial performance, stock
price performance or other attribute of Parent or any of its
Subsidiaries or assets or calculated in accordance therewith
(other than payments or commissions to employees or agents of
Parent or any of its Subsidiaries in the ordinary course of
business consistent with past practices) or to cause Parent or
any of its Subsidiaries to file a registration statement under
the Securities Act or which otherwise relate to the registration
of any securities of Parent or its Subsidiaries. |
(c) Authority; No Conflicts.
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(i) Parent has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby, subject to obtaining the requisite
stockholder approval (the Parent Stockholder
Approval) of this Agreement and the issuance of the
shares of Parent Common Stock to be issued in the Merger (the
Share Issuance). The execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent, subject to obtaining the
Parent Stockholder Approval. This Agreement has been duly
executed and delivered by Parent and constitutes a valid and
binding agreement of Parent, enforceable against it in
accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditors generally or
by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). |
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(ii) The execution and delivery of this Agreement by Parent
does not or will not, as the case may be, and the consummation
by Parent of the Merger and the other transactions contemplated
hereby will not, conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of, or result by
its terms in the, termination, material amendment, cancellation
or acceleration of any material obligation or the loss of a
material benefit under, or the creation of a lien, pledge,
security interest, charge or other encumbrance on, or the loss
of, any material assets (any such conflict, violation, default,
right of termination, amendment, cancellation or acceleration,
loss or creation, a Violation) pursuant to:
(A) any provision of the amended articles of incorporation
or regulations of Parent or except as, individually or in the
aggregate, would not reasonably be expected to have a Material
Adverse Effect on Parent, any provision of the certificate of
incorporation or bylaws of any Significant Subsidiary (as
defined in Rule 1-02 of Regulation S-X of the SEC) of
Parent, or (B) except as, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse
Effect on Parent, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations
and filings referred to in paragraph (iii) below, any
loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, |
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license, judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any Subsidiary of Parent
or their respective properties or assets. |
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(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational,
national, state, municipal, local or foreign government, any
instrumentality, subdivision, court, administrative agency or
commission or other authority thereof, or any quasi-governmental
or private body exercising any regulatory, taxing, importing or
other governmental or quasi-governmental authority (a
Governmental Entity), is required by or with
respect to Parent or any Subsidiary of Parent in connection with
the execution and delivery of this Agreement by Parent or Merger
Sub or the consummation of the Merger and the other transactions
contemplated hereby, except for those required under or in
relation to (A) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR Act), (B) state securities or
blue sky laws (the Blue Sky
Laws), (C) the Securities Act, (D) the
Exchange Act, (E) the DGCL with respect to the filing of
the Certificate of Merger, (F) rules and regulations of the
NYSE, (G) antitrust or other competition laws, of the
European Union or other jurisdictions, and (H) such other
consents, approvals, orders, authorizations, registrations,
declarations and filings the failures of which to make or
obtain, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Parent.
Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of
the foregoing clauses (A) through (G) are
hereinafter referred to as Specified Consents. |
(d) Reports and Financial Statements.
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(i) Parent has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other
documents required to be filed by it with the SEC since
June 30, 2003 (collectively, including all exhibits
thereto, the Parent SEC Reports). No
Subsidiary of Parent is required to file any form, report,
registration statement, prospectus or other document with the
SEC. None of the Parent SEC Reports, as of their respective
dates (and, if amended or superseded by a filing prior to the
date of this Agreement or the Closing Date, then on the date of
such filing), contained or will contain any untrue statement of
a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. Each of the financial statements
(including the related notes) included in the Parent SEC Reports
presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and
cash flows of Parent and its consolidated Subsidiaries as of the
respective dates or for the respective periods set forth
therein, all in conformity with generally accepted accounting
principles (GAAP) consistently applied during
the periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial
statements, to the absence of notes and normal year-end
adjustments that have not been and are not expected to be
material in amount. All of such Parent SEC Reports, as of their
respective dates (and as of the date of any amendment to the
respective Parent SEC Report), complied as to form in all
material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder. |
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(ii) Except as disclosed in the Parent SEC Reports filed
prior to the date hereof, since December 31, 2003, Parent
and its Subsidiaries have not incurred any liabilities that are
of a nature that would be required to be disclosed on a balance
sheet of Parent and its Subsidiaries or the footnotes thereto
prepared in conformity with GAAP, other than
(A) liabilities incurred in the ordinary course of business
and (B) liabilities that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse
Effect on Parent. |
(e) Information Supplied.
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(i) None of the information supplied or to be supplied by
Parent for inclusion or incorporation by reference in
(A) the Form S-4 (as defined in Section 5.01)
will, at the time the Form S-4 is filed with the SEC, at
any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact |
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required to be stated therein or necessary to make the
statements therein not misleading and (B) the Joint Proxy
Statement/ Prospectus will, on the date it is first mailed to
the Company stockholders or Parent stockholders or at the time
of the Company Stockholders Meeting or the Parent Stockholders
Meeting (each as defined in Section 5.01), contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. |
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(ii) Notwithstanding the foregoing provisions of this
Section 3.01(e), no representation or warranty is made by
Parent with respect to statements made or incorporated by
reference in the Form S-4 or the Joint Proxy Statement/
Prospectus based on information supplied by the Company for
inclusion or incorporation by reference therein. |
(f) Board Approval. The Board of Directors of
Parent, by resolutions duly adopted by unanimous vote at a
meeting duly called and held (the Parent Board
Approval), has duly (i) determined that this
Agreement and the Merger are advisable and are fair to and in
the best interests of Parent and its stockholders,
(ii) approved this Agreement, the Merger and the Share
Issuance and (iii) recommended that the stockholders of
Parent approve this Agreement and the Share Issuance and
directed that this Agreement and the Share Issuance be submitted
for consideration by Parents stockholders at the Parent
Stockholders Meeting.
(g) Vote Required. The affirmative vote of the
holders of a majority of the outstanding shares of Parent Common
Stock to adopt this Agreement and approve the Share Issuance is
the only vote of the holders of any class or series of Parent
capital stock necessary to adopt this Agreement and approve the
Share Issuance.
(h) Litigation; Compliance with Laws.
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(i) Except as disclosed in the Parent SEC Reports filed
prior to the date of this Agreement, there are no suits,
actions, claims, arbitrations, proceedings or investigations
(collectively Actions) pending or, to the
knowledge of Parent, threatened, against or affecting Parent or
any Subsidiary of Parent which, individually or in the
aggregate, would reasonably be expected to have a Material
Adverse Effect on Parent, nor are there any judgments, decrees,
injunctions, rules or orders of any Governmental Entity or
arbitrator outstanding against Parent or any Subsidiary of
Parent which, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect on Parent. |
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(ii) Except as disclosed in the Parent SEC Reports filed
prior to the date of this Agreement and except as, individually
or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Parent, (A) Parent and its
Subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are
necessary for the operation of the businesses of Parent and its
Subsidiaries, taken as a whole (the Parent
Permits), and (B) no Parent Permit is subject to
any pending revocation or forfeiture. Parent and its
Subsidiaries are in compliance with the terms of the Parent
Permits, except where the failures to so comply, individually or
in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Parent. Except as disclosed in the
Parent SEC Reports filed prior to the date of this Agreement,
neither Parent nor any of its Subsidiaries is in violation of,
and Parent and its Subsidiaries have not received any notices of
violations with respect to, any laws, ordinances or regulations
of any Governmental Entity, except for violations which,
individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Parent. |
(i) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement or the
transactions contemplated hereby, except as disclosed in the
Parent SEC Reports filed prior to the date of this Agreement,
and except as permitted by Section 4.01, since