Analysts Applaud P&G’s Gillette deal

If Warren Buffet likes it, so does every one else on Wall Street. Analysts were tripping over themselves in their haste to praise P&G’s $57 billion acquisition of Gillette last week. Mr. Buffet, Berkshire Hathaway chairman and Gillette’s largest sharehold called the transaction a “dream deal.”

According to CBS MarketWatch, Banc of America analyst April Scee recommended her clients buy P&G shares on their current weakness, saying the market doesn’t understand the rationale for the transaction.

“The market seems to assume the deal is necessary to perpetuate growth,” Ms. Scee told clients in a note. “We believe both companies have strong upsides to current expectations and [the] deal amplifies that.”

As for the much of the market’s assumption that the merger was driven primarily to gain greater leverage in price negotiations with margin-busting Wal-Mart Stores Inc., at least two analysts don’t see it that way.

“While some view the deal as trying to shift the balance of power with Wal-Mart, we see it more about staying ahead of peers and enhancing Wal-Mart relationship,” said A.G. Edwards’ Jason Gere in a note.

Bear Stearns analyst Christine Augustine concurred, telling clients she didn’t see the merger as having a material negative impact on the world’s largest retailer.

“Keep in mind that the reason Wal-Mart can charge customers less than many of its competitors is not because Wal-Mart pays the supplier a lower price per unit but because of its lower operating cost structure and more efficient distribution network,” said the analyst in her note.

In addition, Mr. Gere affirmed his “buy/aggressive” rating on P&G’s stock, telling clients: “We believe the P&G-Gillette deal should promise P&G dominance in the household and personal care industry for a long time.”

At Deutsche Bank Securities, analyst Bill Schmitz likewise maintained his “buy” recommendation, and offered a glowing assessment of the deal.

“[The] long-term implications for P&G and the industry are massive, as this union should build the best mousetrap the industry has ever seen,” Schmitz told investors in a note.