Gillette Co., which grew from humble beginnings over a fish market on the Boston waterfront to dominate the world's shaving market, agreed to be acquired by the much larger Procter & Gamble Co. in a $55 billion deal that will create the world's largest consumer-products conglomerate, executives familiar with the transaction said last night.
The deal -- offering Gillette shareholders an 18 percent premium over yesterday's closing price -- is scheduled to be disclosed today in New York and marks the latest in a series of signature Boston companies to be acquired by larger companies based elsewhere.
Executives said the deal would result in about 6,000 layoffs, or about 4 percent of the combined companies' workforce. They declined to detail where those reductions would come, although they said Gillette's huge South Boston manufacturing plant would be unaffected. Gillette's headquarters operation in the Prudential Tower is expected to be among the most likely to face job cuts.
The company will continue to be called Procter & Gamble, be headquartered in Cincinnati, and be headed by Procter & Gamble's chief executive, A.G. Lafley. Gillette's chief executive, James Kilts, will become a vice chairman and the only member of the Gillette board to join the Procter & Gamble board, said executives familiar with the deal. The boards of both companies approved the deal late yesterday.
Procter & Gamble has long coveted Gillette, seeing the Boston company's profitable world razor business as a natural extension of its many consumer products -- from Tide detergent to Crest toothpaste. Procter & Gamble made a secret, unsolicited offer to buy Gillette five years ago, but was rebuffed. In the latest round of talks, Kilts is said to have approached Procter & Gamble first.
Both companies declined to comment last night.
The combination, which will face scrutiny from regulators, will give the big consumer products maker added muscle against powerful retailers like Wal-Mart Stores Inc. It should also give Procter & Gamble added clout in advertising markets, where it spends hundreds of millions of dollars a year.
With $51.4 billion in sales last year and more than 100,000 employees, Procter & Gamble is one of the world's largest consumer products companies -- far larger than Gillette, which had $9.3 billion in sales in 2003 and nearly 30,000 employees, including 4,000 in Boston. Gillette has 32 manufacturing operations in 14 companies, its products are sold in more than 200 countries, and it logs about 60 percent of its sales overseas.
Although the two companies compete directly in the oral-care business with Procter & Gamble's Crest and Gillette's Oral-B lines, their other key businesses don't overlap. Procter & Gamble is known for soaps, shampoos, laundry detergents, beauty care, health care, and food and beverages, while Gillette is known largely for its razors and batteries. Procter & Gamble sees itself as particularly strong in marketing to women, Gillette in marketing to men.
Both companies have experienced turnarounds over the past several years and have strong momentum.
Yesterday, Procter & Gamble said its latest quarterly earnings rose by 12 percent, powered by volume growth and high prices, along with cost-cutting and the strong dollar. The company also raised its earnings forecast for the year.
Gillette, with top-selling brands including Mach3 and Venus razors for men and women, has long been the world's number one shaving company. But in the late 1990s, the company began losing market share for many of its brands.
When Kilts joined Gillette in 2001, he aimed to turn around the slumping giant. Kilts trimmed costs and increased advertising. In 2002, sales rose 5 percent to $8.45 billion. They rose again in 2003 to $9.25 billion. As of the end of September, sales were on track to rise another 10 percent in 2004. Under Kilts' leadership, the company's stock has risen about 50 percent.
Despite increased competition from rival Schick-Wilkinson Sword and its St. Louis parent Energizer Holdings Inc., Gillette still dominates the shaving market. But Schick performed a rare feat of one-upsmanship last year, introducing Quattro, the world's first four-blade razor. Gillette quickly responded with M3Power, a razor with a pulsating handle designed to stand hairs on end for a closer shave, outselling Quattro and stealing its thunder.
Gillette has also increased its presence in women's shaving, bringing triple-blade shaving technology to the women's market with its Venus family of razors. Proving that what's good for the gander is good for the goose, the company plans to launch a vibrating version of the Venus called Venus Vibrance.
"It should be good for Gillette shareholders," said William Fries, who helps manage about $12 billion at Thornburg Investment Inc. in Santa Fe, N.M. "The immediate impact may look like it's not all that favorable for Procter & Gamble. But they're getting an excellent product and franchise with the razor-blade business, and I would expect they'll do very well with their battery business as well."
Gillette has a long and proud history. The company's founder, King Gillette, invented the safety razor in 1895 and started the American Safety Razor Co. in 1901. The name was soon changed to Gillette.
Over the years, the company developed a winning strategy for its razors. The idea was to come up with innovations that would persuade Gillette razor users to trade up to its latest flagship product, which invariably came with a premium price tag. And so the Blue Blade gave way to future generations of razors such as the Trac II, the Atra, the Sensor, and Mach3, each brand more expensive than the last.
If razor innovations, including Venus for Women, were a company forte, so too was marketing, particularly sports marketing. From the World Series to the World Cup -- and to the stadium in Foxborough that bears its name -- Gillette has used advertising and sports to pitch its razors.
This one-two punch of innovation and marketing is a formula Gillette has often tried to apply to other products, such as batteries and deodorants. The formula hasn't always worked as well for some of these other products as it has for razors.
In 1967, Gillette acquired Braun AG, an electric shaver brand. In 1984, it bought Oral-B Laboratories, with its line of dental products. In 1996, Gillette bought Duracell. And in 2005, it has agreed to be acquired by P&G.
The deal will be an all-stock transaction, with Procter & Gamble offering 0.975 shares for every Gillette share. That would value Gillette shares at $53.94 each, based on P&G's closing price of $55.32.
The transaction in expected to close in the next four to seven months.
Globe staff writer Chris Reidy and Globe wire services also contributed to this report. Steve Bailey can be reached at email@example.com or at 617-929-2902. Naomi Aoki can be reached at firstname.lastname@example.org.