Two Groups Would Block Gillette-P&G Deal

Big post-merger payouts to executives attract shareholder ire.
Stephen TaubMarch 16, 2005

Two shareholder groups have filed lawsuits seeking to block the planned $54 billion merger between Procter & Gamble Co. and The Gillette Co.

On February 10, Gillette shareholders filed a suit in Delaware state court, alleging that the company’s board of directors and senior management breached their fiduciary duty because the proposed merger is “unduly favorable” to Procter & Gamble, according to Gillette’s account of the suit in its 8-K regulatory filing. If the deal ends up being done, such favoritism would yield excessive compensation for Gillette’s senior managers, the shareholders are said to charge.

If the merger is completed, Gillette chief executive James Kilts could receive a package worth $153.8 million according to the Associated Press. That includes the value of Gillette options, severance, and a grant of P&G options and restricted stock, the wire service added.

The Gillette shareholders want to either prevent the deal from going through or have it rescinded if it is completed. The investor group is also seeking compensatory damages.

Gillette officials said a virtually identical action was filed by another group of shareholders on Feb. 11, also in Delaware state court. A motion to consolidate the two actions is pending. The officials warned that other, similar actions will be filed.

“The company and the other named defendants believe the allegations are without merit and intend to vigorously defend the actions,” Gillette stated in its documents.

In the past year, activist shareholders like CalPERS (the California Public Employees’ Retirement System) and proxy-research firms including Glass Lewis have increasingly questioned, and in some cases, voted against mergers that were expected to deliver big financial payouts to executives.