Analysis: Procter & Gamble's (P&G's) "transformational acquisition" of Gillette to create the world's largest consumer goods company could not have been better timed for P&G - nor worse timed for its competitors.

"The writing is on the wall," says Mr Gary Stibel, chief executive of New England Consulting Group in the US.

"P&G will emerge as one of the two or three largest health and beauty companies in the world in the future. The jury is out on who the others will be, but whoever it is will have to step up to the plate in the next 12-24 months or else they'll become road-kill."

The Ohio-based giant has rebounded from 2000 when it issued three profit warnings after years of inertia.

On the eve of yesterday's deal, P&G raised its earnings outlook after beating back rising commodity costs with a raft of new products from Kandoo Toddler Care Wipes in the US to Olay hand and body soap. Gillette is also once again in rude health.

Mr Jim Kilts, who will oversee the fusion of an entity boasting more than $60 billion (€46 billion) in annual revenue, said: "Four year ago we were underperforming and drifting, but we've turned the company round."

By contrast, P&G's main global rival, Unilever - under fire from investors for missing earnings targets - has been forced to rethink its 2005-2010 strategy in the light of sluggish sales, reflecting changing consumer trends and a price war.

Other fast-moving consumer goods companies are no better prepared.

Colgate-Palmolive's toothpaste and Speed Stick deodorant are battling P&G's Crest toothpaste and Gillette's Right Guard deodorant. Yet it is enmeshed in a restructuring.

Kimberly-Clark, maker of paper towels and battling P&G in nappies, faces an added threat with the addition to P&G of Gillette's talent for innovation.

For Mr A.G. Lafley, P&G's chief executive, the approach from Gillette could not have been better timed after his success in turning P&G into a solid profit-making machine.

"This combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity."

Part of that opportunity is to capitalise on increasing demands from retailers that they deal with the most successful product innovators to ensure their shelves are stocked with the most attractive - and high-margin - healthcare and beauty products.

But it is also a matter of global scale.

"P&G and Gillette can grow together at levels that neither could sustain on its own. The reason is that consumer products is, in the end, a scale business," Mr Lafley said.

"The more scale a company can create, the more opportunities there are to grow margins and invest in brand innovation."

Mr William Schmitz, analyst at Deutsche Bank, said the deal "creates an enterprise unmatched in geographic reach and competitive position".

Indeed, thanks to Gillette's razor and women's haircare products, health and beauty will now account for half of P&G's portfolio. P&G said women's haircare is worth $10 billion in sales annually and is growing at 8 per cent.

P&G and Gillette have also had in place a similar structure of "global business units" in the past five years that should help growth into fast-growing developing markets such as China.

Unilever is considered unlikely to play a prominent part given its pressing business issues.

Mr Graham Jones, analyst at Panmure Gordon, said: "The key issue for Unilever is to reinvigorate its top line, and to do that it must address how it manages the brands and, most importantly, its innovation pipeline."

Coca-Cola, the soft drinks group, could even be sucked into consolidation as a result. Mr Carlos Laboy, Bear Stearns analyst, said: "[ Coke chief executive] Neville Isdell and Coke's board woke up to a different world this morning. If he falls short of both improving Coke's execution and transforming Coke into a non-carbonated soft drink innovator, he may be forced to resort to M&A options." - Financial Times Service