Nasdaq --- Robert (slow)
Interview: P & G
>> we talked about the nasdaq, whether it can squeeze out a weekly gain, appears to have done it. robert gray with a wrap.
>> the nasdaq closing lower on the day at 2035. calling to the desks, into the pits. traders and investors telling me all day long there weren’t enough buyers to extend the first three-day rally we saw this year. they said it was more or less a technical trade. at the highest point, the nasdaq composite trading at 2055, hitting resistance, dropping to the support line around 2027 and trading around that range for most of the afternoon before bouncing off the lows to 2035. you can see on this chart, as matt mentioned, squeaking out a small gain for the week, a point higher than where we were last friday. decliners did outpace advancers 10 to seven but that gap narrowed during the day. microsoft was in focus today, investors watching for reaction today after thursday after the close when it reported better than the average estimate for revenue and earnings. it did close up slightly. apple computer, talking about internals, looking at the nasdaq 100 stocks and apple is the best performer closing at another record high close for apple at 7388, the best performer, only 11 of the 100 stocks in that index are higher for the year. back to you.
>> thanks very much. more on our top story. consumers could soon be able to purchase everything from diapers to razorblades from one company, extraordinary one-stop shopping once that $57 billion thai -- tie-up between procter & gamble and gillette are finalize. zack schrader is an analyst with bb&t asset management and joins us from raleigh, north carolina, with an in-depth look at the deal and the industry. zack, thank you very much for joining us today. a lot has been said about this deal over the last few hours, if you will. do you think it will give procter & gamble the scale it craves to actually demand better pricing from retailers that buy its products?
>> that’s a possibility. we don’t see that being the primary impetus of the combination of the two companies. we actually see it as driven by the combination of two companies that innovate quite well. what we consider two of the best innovators in the consumer category. so that appears to be a tangenal benefit but not the primary driver of the deal.
>> what is the primary driver of the deal?
>> you have of the companies whom we consider as really getting it. they have new products flow coming out, innovative new products that drive higher sales, that drive more money into r&d and creates a virtuous cycle. you have, again, the top two in the consumer category. merging, taking themselves out of the game, and making the market just that much more difficult for competitors.
>> so you have two companies that get it, clearly, in your estimation, but why now? why are they going to get it better together and why are they getting it together better now?
>> it’s pretty interesting. the timing was, again, we found out, kind of neat. typically you see companies getting together, pressured into it from weakness. here you have two companies at the top of their game getting together. so, again, interesting timing. but it gives you a combined company that’s hitting on all cylinders and really strengthens their hand.
>> already talking about what’s going to be disposed if these two companies are allowed to clear the regulatory hurdles and some point to duracell as the least of the good fits. what are your thoughts on that?
>> we don’t necessarily see them as having to sell duracell. the antitrust concern seem to be more focused on the oral care, the crest toothbrush and oral b franchises. duracell is a franchise that has struggled in the past. we think it’s an attractive brand and is sold through the same channels and the rationale with gillette buying a few years ago, still holds. is it a divestiture candidate, certainly as you combine two companies of this scale, everything’s on the table. right now we see them trying to keep the brand and driving that further.
>> gillette’s trading at 15% premium to the average in the household group. it’s expensive, i think most would say, for a typically stayed and recession-proof industry. is p&g overpaying?
>> we feel it’s a pretty fair price. while certainly investors have always liked gillette, it’s been a warren buffett favorite and people have followed him on that, if you look at the ebitda multiple they’re paying, that’s 16 times, roughly in the range of what household product companies have sold for in the last few year, usually 15 to 19 times. if you take the cost savings they expect. it should be about 14 times ebitda sort of price which we feel is pretty attractive. are they overpaying? no. are they paying a reasonable price? we feel yes but they’re getting a really good property for that value.
>> our thanks to you. we’ll take a quick break. when we return, national security investigation of i.b.m.’s planned sale of its personal computer business to len lenovo in china is underway. what it means, next.
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Listen Market briefing --- Matt (slow)
NYSE --- Julie (slow)
P & G --- Allan (slow)
Gillette --- Su (fast)
i am matt nesto. procter & gamble buying gillette, $57 billion. it’s a colossal move that analysts say will shake up several industries, but mostly the household products group. the move will add to gillette’s best-selling line of men’s razor blades and caps the biggest four months of takeover since 2000. gillette shares rallying on the news, still a few dollars short of the full offered price. stocks fell as the government report showed fourth-quarter economic growth slowed more than forecast. the final numbers on the friday session look like this. .3% lower, 40 points down for the dow. s&p, .27% lower and the nasdaq down a full .5%. stocks did rise, though, for the first week in four. but they didn’t have a winning session. drugmakers leading the way lower today. here’s a report from bloomberg’s julie hyman from the big board.
>> besides procter & gamble and gillette today, the other top market story was merck. merck shares hit in today’s session. one of the pieces of news more important than other, according to analysts. a u.s. appeals court said the company’s patent for the once a week version of the osteoporosis drug fosamax was invalid. that means the company should see generic competition for the drug as early as 2008. fosamax accounted for 14% of the company’s 2004 sales so this could be a significant loss for the company. tim anderson, analyst with citigroup, saying in a note today that it could cost the company about 35 cents in earnings per share and that earnings growth between 2007 and 2008 could be flat. the other piece of news today, the securities and exchange commission opening a formal probe into merck’s handling of the recall of the drug vioxx. that was, however, widely expected by investors. a note, merck shares are down 31% before today’s session. since they did recall that drug, vioxx. in other drug-related news today, eli lilly shares taking a hit after that company and a german partner withdrew a u.s. application to sell the same medicine in their antidepressant, cymbalta, as an incontinence treatment. those shares falling. and drugmakers, pharmaceuticals, the general group, the biggest drop within the s&p 500 today. some of the other movers we saw today, however, were energy-related. halliburton falling after that company’s earnings missed estimates. the company said their fourth-quarter loss narrowed. however, excluding items, they came in behind what folks expected. wanted to note events we’ll watch this weekend and the week to come that investors have been talking about. first of all, the iraqi elections will happen on sunday as well as the peak meeting, important for oil investors and equity investors and also the fed meeting and earnings will continue with earnings from exxon-mobil and boeing, among others. i’m julie hyman, bloomberg news, at the new york stock exchange.
>> we know the headline, $57 billion thai up between procter & gamble and gillette. let’s talk about the details. bloomberg’s allan dodds frank was there when the two companies announced the deal and he joins us now with details. allan?
>> the c.e.o.’s of these two old, main-line companies, say the integration of procter & gamble and gillette should go smoothly. they note that gillette and procter & gamble are both global companies with similar cultures, similar distribution chains and the same software systems. this deal was initiated last november by james kilt, c.e.o. of gillette, who said today that he believes in scale and consolidating the consumer products industry. kilts said he could not think of a better way than to join forces with gillette’s best competitor, procter & gamble. remember, five years ago, procter & gamble wanted to buy gillette but was rebuffed. today, gillette’s revenue growth is 10% while procter & gamble’s is 8%. procter & gamble’s c.e.o., a.g. lafley, agreed with kilts and added that together the new company will be a juggernaut. after the analysts’ meeting, procter & gamble chief financial officer, clayton daley jr., sat down to talk about the deal. daley said the company. will probably cut about 6,000 employees and will have about 140,000 employees, not to mention annual sales of $60 billion.
>> if we can dove tail gillette’s product lines into our developing market infrastructure, we think we can get them better distribution, better reach, better presence in the marketplace and i’m hopeful that that will probably be the growth opportunity that has an opportunity to occur the fastest.
>> the executives say the company expects to grow fastest oversea, especially in china, russia and eastern europe. both companies have global distribution, although the executives say they expect gillette’s teams in india and brazil to boost p&g while p&g’s strength in japan and china should help gillette’s product lines there. the companies do not expect hurdles from regulators since most of their product lines are complementary, rather than competitive.
>> appreciate it. of course, procter & gamble’s offer, 18% higher than where gillette shares closed on thursday. it’s a banner day by almost any measure for shareholders of gillette. su keenan has more on the investor perspective.
>> matt, one gillette shareholder told me that as he watched his stock rally on the merger news this morning, he wouldn’t help but yell out, yipee! the shares of the razor maker shot up as much as 13% at the open, closed just above 12.5%, making it the biggest one-day gain for the stock in almost half a decade, october 2000. among the most enthusiastic investors, warren buffett, as berkshire hathaway is gillette’s largest shareholder. he plans to add four million p&g shares to his holdings and will own 100 million shares by the time the transaction is complete.
>> this merger will create the greatest consumer products company in the world with a market cap close to $200 billion, combining two companies that already had outstanding records, outstanding managements, outstanding products. it’s a dream deal.
>> also happy about the deal, marvin rothman who manages roughly $300 million in assets.
>> while it may be dilutive to procter & gamble over perhaps the next three years, it will substantially increase their sales targets from 4-6% to 5. 7% per year and it gives them tremendous clout with retailers.
>> the combined company will have greater leverage in getting shelf space with wal-mart, for instance. in this environment with slowing earnings growth and rising interest rates, northstar’s henry asher sees the merger boosting shareholder value for years to come. the combined company will have annual sales of more than $60 billion.
>> i think it’s a very, very attractive transaction and i think that there’s no reason to expect that this company won’t, going forward, the merged company, procter & gamble, won’t be able to deliver market returns orb better over the long haul.
>> like warren buffett, asher says he’s held his shares since 1999 when they traded above $64 a share. it’s been a tough go since then but he said it started to feel like 1999 all over again today.
>> appreciate it very much. analysts saying 2005 could be one of the biggest years for mergers and acquisitions. june grasso tracking more on the market reaction to the latest in a string of m&a deals.
>> that’s right, matt. some of the world’s best known brands are getting swallowed up in these consolidations. and morgan stanley president stephen newhouse says competitors will have to start looking at their own xornt strategy.
>> you combine two very large companies that cover, as the press release says, the largest and most effective producer of personal care products for women with the largest personal care products for men suppliers so it’s a very important accommodation and people are going to have to look at the implications for their strategies.
>> gillette competes against energizer which makes schick razors and energizer batteries. energizer stock gained 10% since tuesday when it announced first-quarter earnings rose 23% over last year. prudential raised the took to overweight, calling it an attractive takeover candidate. other consumer stocks moving higher in reaction, rayovac upgraded to overweight by prudential because of the potential new wave of consolidation in consumer products. clorox, avon, unilever, which some analysts saying it puts pressure on the dutch company to make a deal of its own. many analysts agree the p&g deal is a negative for colgate because it combines two ino vators in the key oral care category and the pressure is also on colgate.
>> it’s merger mania. colgate palmolive has to do a deal now, they have to do something over the next six months. unilever can’t just sit back and let this deal happen. when you have deals that happen at the top of sectors, which this is, it forces the hands of all the other players.
>> he’s not sure what company colgate might buy but a financial serious company is -- financial services company is a possibility.
>> we’ll look at the ripple effects from the deal of the day and learn what it means for the consumer products industry. that and more next.
