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P&G/Finaf merger approved by EEC.

P&G/Finaf Merger Approved By EEC

industry analyzes impact on European diaper business as the two companies sort out who controls what

THE FACE OF THE SOUTHERN EUROPEAN diaper market has changed radically with word that after more than a year of waiting and intense negotiating, the European Commission in Brussels intends to approve the merger between Procter & Gamble and Finaf. There are, however, some significant changes in the original merger plan that was first announced Sept. 14, 1990 but was delayed because of a challenge under the competition rules of the EEC treaty.

The EEC Commission announced in October that it would "issue a favorable decision" on the planned merger. In doing so the EEC gave a green light to plans for three joint ventures in Italy, Spain and Portugal on the basis of modifications to the original agreement. These modifications were submitted by P&G and Finaf, part of the Angelini Group, in response to requests for changes made by the EEC; the EEC's concern was that the merger agreement "contained clauses that could allow the parties involved to coordinate their competitive behavior and could lead to market sharing liable to restrict competition and affect trade between EEC countries." Among the modifications that were accepted:

* Finaf will not sell the Swaddlers diaper business in the U.K. to P&G. P&G's U.K. diaper plant in Manchester is now operating and the company has begun production of its "Phases."

* Both P&G and Finaf agreed that their joint ventures in Italy (JBC-Italia), Spain (Ausonia II) and Portugal (Lepori II) should be left free to produce diapers anywhere in the EEC.

* P&G promised not to name as a key executive in any of the three joint ventures anyone who simultaneously holds a managerial post in P&G's European paper products business. This, presumably, is to keep the management of the joint ventures separate from P&G corporate decision making.

* The initial agreement creating Ausonia II and Lepori II provided for joint decision making/management. The amended agreement replaces this structure with a majority one, where each parent company is alternately responsible for the management of the joint ventures. The management of Ausonia II and Lepori II will initially be entrusted to Finaf.

Basically, the EEC ruling gives the go-ahead for the merger but stops short of giving P&G the ultimate power it had initially sought. Perhaps the biggest blow came in P&G's inability to purchase the Swaddlers unit, which would have given it virtual control of the British nappy market.

Two of the more interested parties in this development have been Swaddlers, which will remain independent for now, and diaper machinery producer Fameccanica, a member of the Fater Group that has had to deflect questions regarding its independence since the merger plans were announced.

Swaddlers' managing director Jim Clough told NONWOVENS INDUSTRY that Angelini and Fater have given his company a budget for the next year and the company continues to operate normally as rumors of the company's next step flourish. "We will continue to be part of Angelini," Mr. Clough said. "This position was made clear to us some months ago. As a company we are pleased to be remaining independent."

Swaddlers currently produces the number two "Togs" brand in the U.K., as well as "Cares," the leading budget brand. Togs has replaced Peaudouce's "Ultra T Shape" as the second branded stock in a number of U.K. supermarkets.

Swaddlers experienced a heavy loss two years ago and reported a smaller loss last year, but Mr. Clough said the company is now close to making a profit. "The war with Pampers is affecting everyone," he said. "It is hard to make money when the brand leader is selling for 6.49 [pounds] or less and private labels are selling at 5.99 [pounds] to 6.50 [pounds] per pack."

Meanwhile, Donato Carriero, of Fameccanica, Sambuceto, Italy, told NONWOVENS INDUSTRY in mid-November that "the role of Fameccanica remains unchanged, since it will continue its business as an autonomous company, carrying all the activities that characterize an autonomous company."

Fameccanica, he emphasized, "shall honor all agreements with its customers and renews the commitment of full confidentiality on proprietary information and on any future agreement which will be entered into. Contents of such agreements shall not be disclosed by Fameccanica to any of its affiliated companies."

Is Feminine Hygiene The Real Reason?

Much of the information in this article was provided by NONWOVENS INDUSTRY European correspondent Clare Haddad. The following are her further comments on the matter.

THE INFORMATION we have been given about the modified agreement leaves a lot of questions about the plans Procter & Gamble has for southern Europe. Does P&G really need the joint venture to achieve its market share ambitions in the diaper business in Italy? During the last year, sources say that "Pampers" has overtaken Fater's "Lines" as the number one brand.

It seems likely that the joint venture has easily as much to do with P&G's ambitions to become a leading supplier of feminine hygiene products in Europe as it does with the baby diaper market. At any time we expect "Always" and "Always Plus" to be launched in the U.K.

There are other areas of the Angelini business in which P&G is probably interested, especially on the pharmaceutical side, including the new Angelini research center in Rome. In the past P&G has thought in terms of exporting its American brands worldwide, but in recent times it has reasoned that acquiring or merging with successful companies together with their established products is an equally positive way ahead.

P&G and Finaf have been very inconvenienced by the delay in resolving the issue and the extensive modifications they have been required to make to the original agreement. The biggest defeat was the cancellation of the agreement between them by which Fater was to sell Swaddlers to P&G.
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Title Annotation:includes related article on Proctor and Gamble's feminine hygiene products industry; Procter and Gamble Co., European Economic Community
Author:Haddad, Clare
Publication:Nonwovens Industry
Date:Dec 1, 1991
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