MERGER PROPOSAL (EF4312)

2022/23 ACADEMIC YEAR, SEMESTER B

Proposal
Merger proposal: P&G and L’Occitane

Prepared by
Name SID

Burina Fujiwara 55719032

Ho Yu Yau 56202004
Lo Yuk Long 55359060
Tsang Wai In 56679212
Wong King Yu 56633688

CITY UNIVERSITY OF HONG KONG

COLLEGE OF BUSINESS
DEPARTMENT OF ECONOMICS AND FINANCE
Executive summary
This document presents a merger proposal outlining the potential acquisition of L’Occit-
ane by P&G. P&G is the acquiring company, while L’Occitane is the intended target
of the proposed merger. The proposed merger centers on P&G’s strategic objective to
broaden its footprint in the premium natural cosmetics market. As a global consumer
goods corporation with an extensive brand portfolio spanning multiple categories, P&G
is well-established in household and personal care, beauty and grooming, baby care,
healthcare, and other segments. However, P&G lacks a premium natural cosmetic
brand presence in fragrances and hand care, which makes this merger proposal par-
ticularly relevant. By partnering with L’Occitane, P&G aims to gain entry into this
market and enable L’Occitane to leverage the benefits of the merger. Furthermore, the
demand for safe and reliable natural beauty and personal care products has increased
recently. This is another reason why P&G is considering a merger with L’Occitane to
secure long-term market growth and profitability. The payment term would comprise
a mix of cash and stock in this acquisition. The proposed purchase price is 1 billion
dollars, with an exchange ratio of 0.0039 to 0.02.

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Contents
1 Company Overview 1
1.1 Background of P&G . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Goal’s of P&G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Total Revenue of P&G in 2020-2022 . . . . . . . . . . . . . . . . . . . . 1
1.4 SWOT analysis of P&G . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Background of L’Occitane . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Goal’s of L’Occitane . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Total Revenue of L’Occitane in 2020-2022 . . . . . . . . . . . . . . . . 3
1.8 SWOT analysis of L’Occitane . . . . . . . . . . . . . . . . . . . . . . . 4

2 Industry Overview 5
2.1 P&G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 L’Occitane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 L’Occitane V.S. Others Brands . . . . . . . . . . . . . . . . . . . . . . 6

3 Strategic Fit 7
3.1 Market Penetration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 One -Stop Shop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Network Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Cost Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4 Synergy Assumption 8

5 Financial Analysis 8
5.1 P&G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 L’occitane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6 Proposed Merger Offer 12

6.1 Cash Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Stock Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Mixed Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

7 Integration plan 16

8 Risk Management 17
8.1 Due Diligence Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Potential Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

9 Conclusion and recommendation 18

10 References 19

11 Appendix 21
11.1 Total Revenue of P&G in 2020-2022 . . . . . . . . . . . . . . . . . . . . 21
11.2 SWOT Analysis of P&G . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.3 Total Revenue of L’Occitane in 2020-2022 . . . . . . . . . . . . . . . . 23

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11.4 SWOT analysis of L’Occitane . . . . . . . . . . . . . . . . . . . . . . . 24
11.5 The Organic Brands under L’Occitane . . . . . . . . . . . . . . . . . . 25
11.6 Targeting L’Occitane: Reasons for Choosing it Among its Peers . . . . 26
11.7 Merger and Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.8 Table D: DCF Valuation of P&G . . . . . . . . . . . . . . . . . . . . . 27
11.9 Table H: DCF Valuation of L’occitane . . . . . . . . . . . . . . . . . . 28
11.10MVBS of P&G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.11MVBS of L’Occitane . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.12Table A: Income Statement of P&G . . . . . . . . . . . . . . . . . . . . 30
11.13Table B: Balance Sheet of P&G . . . . . . . . . . . . . . . . . . . . . . 31
11.14Table C: Cash Flow of P&G . . . . . . . . . . . . . . . . . . . . . . . . 31
11.15Table E: Income Statement of L’occitane . . . . . . . . . . . . . . . . . 32
11.16Table F: Balance Sheet of L’occitane . . . . . . . . . . . . . . . . . . . 32
11.17Table G: Cash Flow of L’occitane . . . . . . . . . . . . . . . . . . . . . 33
11.18Table I: Tax rate in Annual Report of L’occitane . . . . . . . . . . . . 33
11.19P&G Skin and Personal Care Brands . . . . . . . . . . . . . . . . . . . 34
11.20Table J: Cash Offer (Prediction) . . . . . . . . . . . . . . . . . . . . . . 35
11.21Table K: Cash Offer (Midpoint of range offered by P&G) . . . . . . . . 35
11.22Table L: Share Offer (Prediction) . . . . . . . . . . . . . . . . . . . . . 36
11.23Table M: Share Offer (Rational offered by P&G) . . . . . . . . . . . . . 36
11.24Table N: Mixed Offer (Prediction) . . . . . . . . . . . . . . . . . . . . . 37
11.25Table O: Mixed Offer (Rational offered by P&G) . . . . . . . . . . . . 37

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1. Company Overview
1.1 Background of P&G
Procter & Gamble, also known as P&G, is a multinational corporation in the consumer
goods industry, headquartered in Cincinnati, Ohio. With a rich history dating back
to 1837, P&G has emerged as one of the most prominent and successful companies in
its field. Operating in more than 180 countries worldwide and offering a broad range
of products,P&G holds a significant position in the global consumer goods market.
The company’s diverse brand portfolio encompasses a wide range of household and
personal care products. However,P&G may need to look into strengthening its position
in the fragrance and hand care product categories in natural cosmetic market, where
it currently lacks a robust presence compared to some of its competitors.

1.2 Goal’s of P&G

P&G aims to establish itself as a leading global provider of high-quality consumer goods
and services. The company remains committed to promoting sustainability practices
in its operations to ensure minimal impact on the environment. Furthermore, The
company’s commitment to quality and value extends to future generations, focusing on
developing innovative solutions that meet the needs of evolving markets and consumers.

1.3 Total Revenue of P&G in 2020-2022

Figure 1: Total Revenue of P&G in 2020-2022

The above showcases the distribution of P&G’s total revenue and gross profit between
2020 and 2022.

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1.4 SWOT analysis of P&G

Figure 2: SWOT Analysis of P&G

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1.5 Background of L’Occitane
L’Occitane[12] is a well-known global brand with a widespread presence across numerous
countries worldwide. The company originated in France in 1976 and has since expanded
to over 90 countries, boasting more than 3,000 stores globally. The company engages in
sustainable production practices to yield outstanding, naturally-derived products. Its
portfolio comprises six distinct beauty and personal care brands. Notably, L’Occitane’s
hand cream is an iconic and top-selling product recognized for its formulation with
natural ingredients. Furthermore, L’Occitane strives to lead the natural cosmetics
market by creating high-quality, effective, and environmentally sustainable products.
In pursuit of this objective, a merger with P&G, one of the largest multinational
consumer goods companies, would be a mutually beneficial partnership.

1.6 Goal’s of L’Occitane

L’Occitane Group aims to become the market leader in the natural cosmetics market[12] .
The company is committed to delivering premium quality items while showing unwa-
vering respect for the environment throughout every production stage. L’Occitane’s
entrepreneurial ethos and adherence to its Mission, which emphasizes positively im-
pacting people and regenerating nature through empowerment, drives its initiatives.
The company is dedicated to investing in biodiversity and discovering sustainable res-
olutions as part of its commitment to building a healthier and superior planet.

1.7 Total Revenue of L’Occitane in 2020-2022

Figure 3: Total Revenue of L’Occitane in 2020-2022

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The above showcases the distribution of L’Occitane total revenue and gross profit
between 2020 and 2022.

1.8 SWOT analysis of L’Occitane

[8, 9, 11]

Figure 4: SWOT Analysis of L’Occitane

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2. Industry Overview
P&G and L’occitane are global leaders in different industries. P&G is a major player
in the worldwide consumer goods industry but has yet to become a significant player
in the natural cosmetics industry. In contrast, L’occitane is a global leader in this
industry.

2.1 P&G
Procter & Gamble (P&G) is the leading global enterprise within the personal prod-
uct sector of the consumer packaged goods (CPG) industry. Given the competitive
nature of the CPG industry, P&G competes with a range of diversified players such
as Kimberly-Clark Corp., Colgate-Palmolive Co., Johnson and Johnson, Avon prod-
ucts Co. and Unilever. Like P&G, firms with diverse portfolios must leverage brand
recognition and product innovation to gain market share.

2.2 L’Occitane
L’Occitane operates in the highly competitive luxury cosmetics and skincare industry.
Its main competitors include global giants such as Estée Lauder, L’Oreal, and Chanel
and niche luxury brands such as Aesop and Rituals.com. The luxury cosmetics and
skincare industry is characterized by constantly introducing innovative products, in-
creasing demand for natural and organic ingredients, and high brand loyalty among
consumers. Moreover, P&G and L’Occitane are playing in the industry, which growth is
primarily driven by rising consumer disposable incomes, increased health and wellness
awareness, and growing demand from emerging markets.

Figure 5: The Organic Brands under L’Occitane

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2.3 L’Occitane V.S. Others Brands
As the mentioned, there are some exist several prominent brands in the same industry
as L’Occitane, including Natura & Co, Rituals.com, and Aveeno, which compete with
one another in this market.

Figure 6: Targeting L’Occitane: Reasons for Choosing it Among its Peers

Aveeno is a brand that belongs to Johnson & Johnson. While there is no publicly
available financial information that is specific to Aveeno as a brand, we can not compare
it to other brands using the limited information available in the table above.
Based on this information, L’Occitane has the highest market capitalization and
operating margin. Its current ratio of 1.11 indicates that L’Occitane has sufficient
short-term assets to cover all short-term liabilities if necessary. Besides, L’Occitane
holds a good reputation among its intended audience and enjoys a substantial market
share in natural cosmetics, having been acclaimed for over 15 products.[13] The company
strongly emphasizes the utilization of traceable and dependable raw materials, which
are sourced from French farmers and Burkina Faso. Therefore, in comparison to Aesop,
which is owned by Natura &Co, L’Occitane would be the preferable choice for P&G to
expand the premium fragrances and hand care market.

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3. Strategic Fit
3.1 Market Penetration
The proposed merger between P&G and L’Occitane aims to adopt a market penetra-
tion strategy to achieve growth and increase market share in existing markets. This
entails expanding the sales of their current offerings, be it products or services, within
their existing market segments. The objective is to sell more products or services
to established customers or to attract new customers within the same market. The
company can achieve this by intensifying its promotional efforts and strengthening its
distribution channels. By leveraging its existing strengths and resources, P&G and
L’Occitane aim to drive sales growth and expand their market share in the current
market scenario.

3.2 One -Stop Shop

P & G currently offers a range of product lines: home care, baby care, health care,
family care, and several others. With the acquisition of l’occitane, the company is
focus to venture into the natural beauty sector and offer customers an expanded range
of organic and premium choices, including high-end perfumes and hand creams. This
”One-stop shop” approach is a strategic move that can effectively augment customer
loyalty by allowing them to find multiple products under one brand.

3.3 Network Synergy

P&G serves more than millions of customers by providing a diverse range of consumer
goods products. The acquisition of L’Occitane presents several advantages, including
access to the same user base for both companies, potentially resulting in increased sales
transactions. Furthermore, accumulating user data enables L’Occitane and P&G to
derive more meaningful insights through data analytics, leading to the development
of superior products and services. These outcomes align with the stated mission and
values of both P&G and L’Occitane as outlined on their websites.

3.4 Cost Synergy

P & G and L’Occitane are two companies that operate in the consumer goods industry.
The acquisition of L’Occitane by P&G aims to streamline and optimize their online
sales transactions by reducing redundant resources in shipping, thus achieving a lower
cost and higher efficiency. Additionally, P&G’s marketing and research and devel-
opment (R&D) resources can be shared with L’Occitane to potentially enhance the
performance and growth of the brand. This acquisition could create synergies between
P & G and L’Occitane, leading to a mutually beneficial outcome for both companies.

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4. Synergy Assumption
Given an assessment of the portfolios of P&G and L’Occitane, we can confidently
assert that the proposed merger between the two companies would likely generate, at
minimum, a synergy of 1 billion dollars. As such, we will assume a 1 billion dollars
synergy for our subsequent analysis.

5. Financial Analysis
5.1 P&G
According to the income statement and balance sheet of P&G[5, 7] , P&G has experi-
enced a consistent increase in revenue over the last three years, with $80,281 million
in the most recent TTM period, up from $76,118 million in the previous year. During
this same period, the cost of revenue has also risen, reaching $42,871 million in the
latest TTM period. While P&G’s gross profit has fluctuated over the past three years,
there was a slight decrease in the latest TTM period compared to the previous year.
In addition, P&G’s operating expenses have remained relatively steady over the
past three years, with a slight decrease in the latest TTM period. P&G’s operating
income, on the other hand, has been steadily increasing over the past three years, with
a significant rise in the latest TTM period compared to the previous year. P&G’s
diluted earnings per share (EPS) have also risen over the past three years, reaching $5,
which indicates a substantial profit for stockholders.
Moreover, as the cash flow statement[6] indicates, P&G experienced a decline in
its operating cash flow, which decreased from $18.4 billion in 2020 to $14.6 billion
during the trailing twelve months (TTM) period. Furthermore, P&G’s investing cash
flow was negative during all of the reported periods, which suggests that the company
expended more on investing activities than it generated from them. In the same vein,
P&G’s financing cash flow was also negative throughout the given periods, indicating
that the company disbursed more on financing activities than it received from them.
The company’s free cash flow decreased from $15.6 billion in the year 2020 to $11.6
billion in the TTM period, primarily due to a reduction in operating cash flow and
increased capital expenditures.
P&G’s capital expenditures were consistent in the given years, ranging from $2.8
billion to $3.2 billion. The company issued debt in 2021 and 2020 but paid off more
debt than it showed in those years, resulting in decreased financing cash flow. P&G
repurchased its shares in the given years, reducing its repurchases to $8.5 billion in
the TTM period. The company’s end cash position decreased significantly from $16.2
billion in 2020 to $7.2 billion in the TTM period, mainly due to decreased free cash
flow and increased debt issuance.
Using information from Yahoo! Finance and Tables A, B, and C, we can deter-
mine the MVBS (market value of P&G’s total equity) as of June 29, 2022. The beta
for P&G is reported to be 0.4.

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 Figure 7: MVBS of P&G

Assuming CAPX is 3.2 billion, depreciation is 3.1 billion, tax rate is 23%[15] , risk-
free rate is 4%, risk premium is 6%, gross cost of debt capital is 0.6, debt to value ratio
is 0.3 and there is no legal liability for P&G. We can formulate a DCF valuation for
P&G which is shown in Table D.

Figure 8: DCF Analysis of P&G

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5.2 L’occitane
According to the income statement and balance sheet of L’occitane[2, 4] , the company’s
operating income has steadily increased over the years, with the most recent trailing
twelve months (TTM) showing a value of $321.2 million. In the past five years, the
company has experienced net non-operating interest expenses, with a negative value of
$22.3 million in the TTM. The pretax income has also shown steady growth over the
years, with the TTM value reaching $296.1 million. The tax provision increased in the
TTM as well, with a value of $50.9 million. The net income has shown steady growth
over the years, reaching $243.9 million in the TTM. The basic and diluted earnings
per share have also increased over time, with values of $0.17 and $0.16 in the TTM,
respectively. EBIT has also increased steadily, with a value of $313.4 million in the
TTM.
According to the cash flow of L’occitane[3] , L’Occitane experienced a decline in
its operating cash flow from $429.5 million in 2021 to $326.0 million in the TTM
period, indicating a reduction in cash generated from its primary business operations.
Throughout the given periods, the company’s investing cash flow remained negative,
suggesting that L’Occitane spent more on investing activities than it received. In 2020
and 2021, L’Occitane’s financing cash flow was negative, but it became positive in the
TTM period due to debt issuance.
The company’s final cash balance fell significantly from $421.2 million in 2021 to
$159.9 million in the TTM period. Capital expenditures decreased from $32.9 million
in 2020 to $40.5 million in the TTM period, and the company did not repurchase
any capital stock during these years. Debt issuance increased significantly from $229.7
million in 2020 to $824.3 million in the TTM period, and the company repaid debt every
year, with the most significant debt repayment in 2019. The decrease in L’Occitane’s
free cash flow from $396.6 million in 2020 to $285.5 million in the TTM period.
To sum up, L’Occitane has been achieving steady revenue growth, which has
led to an increase in gross profit and operating income. The company has effectively
managed its operating expenses growth. Nevertheless, L’Occitane has faced net non-
operating interest expenses and an escalating tax provision, leading to a negative net
income from continuing operations. The rising basic and diluted EPS implies that the
company has been creating value for its shareholders.
Using information from Yahoo! Finance and Tables E, F, and G, we can determine
the MVBS (market value of L’occitane’s total equity) as of March 30, 2022. The beta
for L’occitane is reported to be 0.7.

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 Figure 9: MVBS of L’Occitane

Assuming CAPX is 0.0038 billion, depreciation is 0.015 billion[16] , tax rate is

20%[10] , risk-free rate is 0.02, risk premium is 0.06, gross cost of debt capital is 0.15[16] ,
debt to value ratio is 0.1 and there is no legal liability for L’occitane. We can formulate
a DCF valuation for L’occitane which is shown in Table H.

Figure 10: DCF Analysis of L’Occitane

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6. Proposed Merger Offer
6.1 Cash Offer
P&G and L’Occitane share an equivalent annual growth rate of 6 %. Thus, P&G
cannot propose an offer lower than L’Occitane’s anticipated growth rate. Given this
rational consideration, it is worth exploring a cash-only merger scenario using Excel.

Figure 11: Table J: Cash Offer (Prediction)

Figure 12: Table K: Cash Offer (Midpoint of range offered by P&G)

Through this analysis, it has been determined that P&G would be willing to offer
between 3.83 billion and 4.2 billion to L’Occitane. However, L’Occitane has specified
that they would only consider accepting an offer not less than 4.05 billion in cash for
the sale of their entire share due the 6 % annual growth rate. They have to ensure
their shareholders profit.

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 If a cash offer is agreed upon, the midpoint of the range offered by P&G, which
is 4.15 billion dollars, would be the most rational choice. This would result in a 0.12
% growth rate for P&G and an 8 % growth rate for L’Occitane following the merger.
Upon examining the historical records[1] , it was found that Procter & Gamble merged
with Noxell, a cosmetic company. The terms of the agreement specified that P&G
would exchange 0.272 shares of its common stock for each of Noxell’s 40.5 million
common and class B shares, resulting in a tax-free transaction.

6.2 Stock Offer

Considering P&G’s current financial standing, the company holds a significant amount
of cash reserves, which is typical for a large corporation such as P&G. To preserve
these reserves, P&G may consider offering stock as an alternative to cash. This would
enable the company to avoid depleting its cash resources and potentially benefit from
the target company’s future growth. Additionally, offering stock may provide a tax
benefit to L’Occitane’s shareholders. Thus, it is likely that P&G and L’Occitane would
opt for a stock offer rather than a cash offer.
According to the financial analysis, P&G’s stock price is currently valued at
$143.65, whereas L’Occitane’s stock price is valued at $2.32. This indicates that 0.016
shares of P&G are equivalent in value to one share of L’Occitane.
After conducting an analysis using Excel, it has been determined that L’Occitane
would not be receptive to trading 0.016 shares of P&G for one share of L’Occitane
due to the negative impact it would have on L’Occitane’s growth. Besides, it would
be reasonable for L’Occitane to accept an offer from P&G to purchase one share of
L’Occitane using 0.0253 shares of P&G.

Figure 13: Table L: Stock Offer (Prediction)

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 Figure 14: Table M: Share Offer (Rational offered by P&G)

6.3 Mixed Offer

Considering P&G using a mixed offer to acquire L’Occitane, after conducting an anal-
ysis using Excel which could result in two potential deals:

Figure 15: Table N: Mixed Offer (Prediction)

The first deal would involve P&G offering 1 billion dollars in cash and 0.004
shares of P&G for every share of L’Occitane. In this scenario, P&G would experience
a growth rate of 0.56%, while L’Occitane would enjoy a growth rate of 7%.
Alternatively, the second deal would involve P&G offering 1 billion dollars in
cash and 0.0039 shares of P&G for every share of L’Occitane. This deal would result
in P&G experiencing a growth rate of 0.57%, while L’Occitane would enjoy a growth
rate of 6%. If P&G were to offer the first deal, L’Occitane would likely be willing to
accept it. However, as P&G is a larger company than L’Occitane, it is more probable
that they would offer the second deal, which L’Occitane may still find acceptable.

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 Figure 16: Table O: Mixed Offer (Rational offered by P&G)

After conducting a comprehensive financial and strategic fit analysis, there is a

table created to present the potential offers.

Figure 17: Possible Offers

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7. Integration plan
There is an integration plan for acquiring L’Occitane by P&G. Our proposed strategy
focuses on leveraging the strengths of both companies to create a more efficient and
profitable business model.
• Phase 1: Pre-Merger Planning
– In this phase, we will assess both companies’ financial and operational as-
pects to identify areas of synergy and potential integration challenges. The
pre-merger planning will include the following:
∗ Conducting due diligence to evaluate L’Occitane’s business operations,
financial performance, and market position.
∗ Analyzing both companies’ organizational structure, culture, and talent
to identify potential cultural differences and areas of overlap.
∗ Developing a detailed integration plan that outlines the merger’s time-
line, budget, and goals.
• Phase 2: Integration Execution
– In this phase, we will execute the integration plan by implementing changes
to both companies’ business processes and operations. The integration ex-
ecution will include the following:
∗ Integrating L’Occitane’s online sales platform with P&G’s existing e-
commerce infrastructure to reduce redundant resources in shipping and
increase the efficiency of online sales transactions.
∗ Consolidating back-office functions, such as finance and HR, to reduce
costs and improve operational efficiency. Sharing marketing and R&D
resources to improve L’Occitane’s brand positioning and product inno-
vation.
∗ Developing cross-selling opportunities by leveraging P&G’s extensive re-
tail distribution network to increase L’Occitane’s market reach. Stream-
lining the supply chain and optimizing the manufacturing process to
reduce costs and improve profitability.
• Phase 3: Post-Merger Integration
– In this phase, we will evaluate the performance of the merged entity and
make necessary adjustments to optimize business operations. The post-
merger integration will include the following:
∗ Conducting regular performance reviews to assess the integration plan’s
effectiveness and identify improvement areas.
∗ Continuously monitor market trends and consumer preferences to adjust
the business strategy and product offerings accordingly.

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 ∗ Developing a strong corporate culture that promotes collaboration, in-
novation, and accountability. It is leveraging the strengths of both com-
panies to expand into new markets and create new revenue streams.
In conclusion, acquiring L’Occitane by P & G can create significant value for both
companies. This integration plan focuses on optimizing business operations, reducing
costs, improving profitability, and expanding market reach. We are confident that this
proposed project will lead to a successful merger and a stronger, more competitive
company.

8. Risk Management
8.1 Due Diligence Issues
If Procter & Gamble (P&G) were to proceed with the acquisition of L’Occitane, it
would be necessary to evaluate several due diligence issues, including the following
carefully:
• Legal and Compliance
– P&G shall ascertain that L’Occitane adheres to all pertinent statutes and
regulations, encompassing environmental, labor, and data protection provi-
sions. Non-compliance with such legal requirements may precipitate sub-
stantial penalties, litigation, and damage to reputation.
• Financial and Tax
– P&G shall examine L’Occitane’s financial statements, tax documents, and
accounting procedures to ascertain the absence of any discrepancies or prospec-
tive liabilities. Such examination shall encompass an evaluation of L’Occitane’s
assets, liabilities, cash flows, and any extant legal claims or disputes.
• Intellectual Property
– P&G shall ascertain that L’Occitane has obtained all requisite patents,
trademarks, and copyrights pertaining to its products and processes, thereby
circumventing potential disputes or allegations of infringement.
• Organizational Structure
– P&G shall scrupulously inspect L’Occitane’s organizational framework, hu-
man resources, employee morale, and labor relations for the purpose of in-
stituting a well-defined organizational structure. This structure is to demar-
cate roles and responsibilities for personnel from both P&G and L’Occitane,
facilitating seamless and effective integration whilst reducing the likelihood
of potential discord or employee turnover.
• Operational Integration
– P&G shall ascertain the optimal manner of incorporating L’Occitane’s op-
erations, systems, and procedures, encompassing supply chain, manufactur-
ing, and distribution, to attain cost synergies and operational efficiencies.

17
 This may necessitate a thorough evaluation of L’Occitane’s agreements with
suppliers, logistics providers, and retailers.
• Cultural Integration
– P&G and L’Occitane shall collaborate to reconcile any cultural disparities
and institute a mutual set of values, principles, and standards.

8.2 Potential Risks

The merging of two companies, particularly those with distinct corporate cultures,
may present various challenges that must be carefully considered. For instance, one
potential issue is the mismatch between the management teams’ working styles and
paces. To effectively collaborate, both teams need to be flexible and adaptable to the
working styles of each other.
Another challenge may be the need to restructure the employment and equipment
structure, which could reduce employee headcount and the settlement of redundant
equipment. This may involve significant financial and legal considerations, such as re-
dundancy packages and agreements with equipment vendors. Furthermore, integrating
data rooms between the two companies may present potential issues, including typos
and privacy concerns. As such, it may be necessary to establish clear protocols and
guidelines to ensure the security and accuracy of shared data.

9. Conclusion and recommendation

Our recommendation is for P&G to pursue the acquisition of L’Occitane using a mixed
offer with an exchange ratio ranging from 0.0039 to 0.02. This strategic move would
result in a mutually beneficial outcome for both companies, particularly given the
bright prospects of the natural cosmetic industry. This merger has the potential to
generate synergies and provide unique value propositions for the customers of both
brands. However, P&G must perform thorough due diligence to identify potential
risks and issues associated with the acquisition. With careful execution, this proposed
merger could deliver substantial value for both parties involved.

18
10. References
[1] Caprino, M. (2023). Procter gamble, noxell announce $1.3 billion merger.
Retrieved March 29, 2023 from https://apnews.com/article/365e7ee8a27
16131da2c5aa84eeecf97

[2] Finance Yahoo! (2023). L’occitane international s.a. (lcctf) balance sheet.
Retrieved March 29, 2023 from https://finance.yahoo.com/quote/LCCTF/
balance-sheet?p=LCCTF

[3] Finance Yahoo! (2023). L’occitane international s.a. (lcctf) cash flow.
Retrieved March 29, 2023 from https://finance.yahoo.com/quote/LCCTF/
cash-flow?p=LCCTF

[4] Finance Yahoo! (2023). L’occitane international s.a. (lcctf) income statement.
Retrieved March 29, 2023 from https://finance.yahoo.com/quote/LCCTF/fi
nancials?p=LCCTF

[5] Finance Yahoo! (2023). The procter gamble company (pg) balance sheet.
Retrieved March 29, 2023 from https://finance.yahoo.com/quote/PG/bal
ance-sheet?p=PG

[6] Finance Yahoo! (2023). The procter gamble company (pg) cash flow.
Retrieved March 29, 2023 from https://finance.yahoo.com/quote/PG/cas
h-flow?p=PG

[7] Finance Yahoo! (2023). The procter gamble company (pg) income statement.
Retrieved March 29, 2023 from https://finance.yahoo.com/quote/PG/finan
cials?p=PG

[8] Intelligence Mordor (n.d.). Beauty and personal care products market - growth,
trends, and forecasts (2023 - 2028). Retrieved March 29, 2023 from https://ww
w.mordorintelligence.com/industry-reports/global-beauty-and-persona
l-care-products-market-industry

[9] Intelligence Mordor (n.d.). Hand care market - growth, trends, covid-19 impact,
and forecasts (2023 - 2028). Retrieved March 29, 2023 from https://www.mord
orintelligence.com/industry-reports/hand-care-market

[10] IPleaders (2021). Tax duties in acquisition regime in india.

Retrieved March 29, 2023 from https://blog.ipleaders.in/tax- dutie
s-in-acquisition-regime-in-india/

[11] Lim, A. (n.d.). Beauty revival: Top 10 stories on post-covid beauty revival and
consumer trends. cosmeticsdesign. Retrieved March 29, 2023 from https://www.
cosmeticsfdesign-asia.com/Article/2023/01/04/beauty-revival-top-1
0-stories-on-post-covid-beauty-and-consumer-trends

[12] L’OCCITANE, G. (n.d.). Who we are: L’occitane. Retrieved March 29, 2023 from
https://group.loccitane.com/group/who-we-are

19
[13] L’Occitane (n.d.). Award winners (15). Retrieved March 29, 2023 from https:
//uk.loccitane.com/award-winners,83,1,101310,0.htm#minp=10&maxp=80
&nbproducts=11

[14] MBA Skool Team (2020). L’occitane swot analysis, competitors usp.
Retrieved March 29, 2023 from https://www.mbaskool.com/brandguide/li
festyle-and-retail/4649-loccitane.html#strengths

[15] P&G Tax Rate (n.d.). The complete toolbox for investors.
Retrieved March 29, 2023 from https://finbox.com/NYSE:PG/explorer/
effect_tax_rate

[16] S.A., L. I. (n.d.). L’occitane announces unaudited quarterly update for the period
ended 31 december 2021. Retrieved March 29, 2023 from https://group.locc
itane.com/sites/default/files/2022-01/Media%20Release_FY2022%20Q3%
20Update_Eng_Final.pdf

20
11. Appendix
11.1 Total Revenue of P&G in 2020-2022

21
11.2 SWOT Analysis of P&G

22
11.3 Total Revenue of L’Occitane in 2020-2022

23
11.4 SWOT analysis of L’Occitane

24
11.5 The Organic Brands under L’Occitane

25
11.6 Targeting L’Occitane: Reasons for Choosing it Among
its Peers

26
11.7 Merger and Acquisition

11.8 Table D: DCF Valuation of P&G

27
11.9 Table H: DCF Valuation of L’occitane

11.10 MVBS of P&G

28
11.11 MVBS of L’Occitane

29
11.12 Table A: Income Statement of P&G

30
11.13 Table B: Balance Sheet of P&G

11.14 Table C: Cash Flow of P&G

31
11.15 Table E: Income Statement of L’occitane

11.16 Table F: Balance Sheet of L’occitane

32
11.17 Table G: Cash Flow of L’occitane

11.18 Table I: Tax rate in Annual Report of L’occitane

33
11.19 P&G Skin and Personal Care Brands

34
11.20 Table J: Cash Offer (Prediction)

11.21 Table K: Cash Offer (Midpoint of range offered by P&G)

35
11.22 Table L: Share Offer (Prediction)

11.23 Table M: Share Offer (Rational offered by P&G)

36
11.24 Table N: Mixed Offer (Prediction)

11.25 Table O: Mixed Offer (Rational offered by P&G)

37