Gillette Announces Divestiture Plans

question 57

Essay

Gillette Announces Divestiture Plans
With 1998 sales of $10.1 billion, Gillette is the world leader in the production of razor blades, razors, and shaving cream. Gillette also has a leading position in the production of pens and other writing instruments. Gillette's consolidated operating performance during 1999 depended on its core razor blade and razor, Duracell battery, and oral care businesses. Reflecting disappointment in the performance of certain operating units, Gillette's CEO, Michael Hawley, announced in October 1999 his intention to divest poorly performing businesses unless he could be convinced by early 2000 that they could be turned around. The businesses under consideration at that time comprised about 15% of the company's $10 billion in annual sales. Hawley saw the new focus of the company to be in razor blades, batteries, and oral care. To achieve this new focus, Hawley intended to prune the firm's product portfolio. The most likely targets for divestiture at the time included pens (i.e., PaperMate, Parker, and Waterman), with the prospects for operating performance for these units considered dismal. Other units under consideration for divestiture included Braun and toiletries. With respect to these businesses, Hawley apparently intended to be selective. At Braun, where overall operating profits plunged 43% in the first three quarters of 1999, Hawley has announced that Gillette will keep electric shavers and electric toothbrushes. However, the household and personal care appliance units are likely divestiture candidates. The timing of these sales may be poor. A decision to sell Braun at this time would compete against Black & Decker's recently announced decision to sell its appliance business.
Although Gillette would be smaller, the firm believes that its margins will improve and that its earnings growth will be more rapid. Moreover, divesting such problem businesses as pens and appliances would let management focus on the units whose prospects are the brightest. These are businesses that Gillette's previous management was simply not willing to sell because of their perceived high potential.
-Comment on the timing of the sale.

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Definitions:

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