Gillette Announces Divestiture Plans With 1998 sales of $10.1 billion, Gillette is the world leader.

Gillette Announces Divestiture Plans

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 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
announced that Gillette would keep electric shavers and electric toothbrushes.
However, the household and personal care appliance were likely divestiture
candidates. The timing of these sales was poor. A decision to sell Braun in
1999 would have competed against Black & Decker’s announced decision to
sell its appliance business. Although Gillette would be smaller, the firm
believed that its margins would improve and that its earnings growth would 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.

 Case Study Discussion Questions

1. Which of the major restructuring motives discussed in
this chapter seem to apply in this business case? Explain your answer.

2. Describe the process Gillette’s management may have gone
through to determine which business units to sell and which to keep.

3. Comment on the timing of the sale.

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