Jan. 29 (Bloomberg) -- Gillette Co. Chief Executive Officer Jim Kilts expects more acquisitions among consumer-products companies in the wake of Procter & Gamble Co.'s $52.4 billion planned purchase of the razor- and battery-maker.

``Strength plus strength equals success,'' Kilts said on a conference call with investors yesterday. ``I'm a great believer in scale. I firmly believe the consumer-products industry needs to consolidate.''

Consumer-goods makers including Unilever, Kimberly-Clark Corp. and Colgate-Palmolive Co. face pressure to get bigger to reduce costs and gain clout with retailers led by Wal-Mart Stores Inc., investors and analysts said. Gillette will help P&G's distribution of products in faster-growing emerging markets such as Brazil and India, P&G Chief Executive A.G. Lafley said.

``This is an envious deal for everyone in the sector,'' said Ken Costa, chairman of European investment banking at UBS AG, in an interview yesterday at the World Economic Forum in Davos, Switzerland. ``I do expect in the course of the year to see the mergers and acquisitions market grow in consumers as well as other sectors.''

Household-products makers may need acquisitions to gain efficiencies as costs for raw materials such as plastic surge, and as sales of diapers, soap and toothpaste in the U.S. and Europe remain stagnant, investors said.

In the U.S., sales of laundry detergent, toilet tissue and tampons are growing less than 2 percent a year. By contrast, Procter & Gamble's sales in China and Russia doubled in the past three years, Lafley said in October.

Wal-Mart

The combined company would have annual sales of $60.7 billion and add Mach3 razors and Duracell batteries to P&G's more than 250 brands including Pampers diapers. Cincinnati-based P&G already has 16 brands with more than $1 billion in annual sales; its purchase of Boston-based Gillette would add five more.

Vevey, Switzerland-based Nestle SA, the world's No. 1 foodmaker, has annual revenue of $65.4 billion. Unilever, the world's largest maker of food and soap, has $48.25 billion.

Consumer-products makers are seeking to increase in size as they battle for shelf space at large retailers. Wal-Mart, the world's No. 1 retailer, has added 506 discount stores since 2000 for a total of 3,035 in the U.S. as of this month.

Wal-Mart accounted for 17 percent of sales at P&G last year, and 13 percent for Gillette.

Shares of P&G, the biggest U.S. household-goods maker, fell $1.17, or 2.1 percent, to $54.15 as of 4:17 p.m. in New York Stock Exchange composite trading yesterday. Gillette shares jumped $5.91, or 13 percent, to $51.60.

Unilever, Colgate

``Wal-Mart has increasing clout, and can put increasing pressure on their suppliers,'' said Floyd Greenwood, a former senior analyst at Lazard Asset Management who now runs his own research firm. ``It's tough for anyone to say no to P&G's brand portfolio now, but it won't hurt for P&G to have even more brands like Gillette's in its portfolio.''

Competitors are likely to respond.

``It turns up the heat on the competitors of Procter & Gamble and Gillette,'' said John Haynes, who manages U.S. assets at Carr Sheppards Crosthwaite Ltd. in London. ``The Colgates and Kimberly- Clarks of the world, who now look increasingly isolated in their limited fields of operation.''

Wal-Mart doesn't comment on other companies' business decisions, spokesman Gus Whitcomb said.

Unilever may fall further behind P&G after the acquisition of Gillette, analysts say.

``Procter was already a competitor of incredible strength,'' said Edwin Slaghekke, a fund manager at Amsterdam-based Theodoor Gilissen Bankiers, which has about $3.4 billion under management. ``With this increased scale, they are fierce and it will be hard for Unilever to compete.''

Unilever Co-Chairman Antony Burgmans, who is in Davos for the World Economic Forum, declined to comment.

From the Sidelines

Nestle won't take part in the industry consolidation, Chief Executive Peter Brabeck said.

``We have attained a size where all we can do is look on from the sidelines,'' Brabeck said in an interview in Davos. He predicts further acquisitions in the food industry by competitors.

In December, Kimberly-Clark Chief Executive Tom Falk said the maker of Huggies and Kleenex tissue would consider smaller acquisitions to complement existing product lines and that large purchases wouldn't play a big part in transforming the company.

Kimberly-Clark product lines don't overlap with Gillette's, Kimberly-Clark spokesman David Dickson said.

Pricing Power

Colgate Chief Executive Reuben Mark, at a May 2003 conference in New York, said the company had no interest in big acquisitions. Spokeswoman Hope Spiller didn't return a call seeking comment yesterday.

Without acquisitions, it's increasingly difficult for household-goods makers to boost sales, investors say. Colgate's sales have risen 3 percent a year the past five years, and Kimberly-Clark's 3.1 percent.

Consumer-goods makers may need more leverage to raise prices at a time prices of raw materials such as plastic resin and aluminum are surging, squeezing their profit margins. Oil prices have risen 40 percent in the past year, lifting the cost for shipping and for petrochemicals used in detergent and in plastic packaging.

``This is going to be the catalyst for other deals this year,'' said Edouard Dubuis, a fund manager at Clariden Bank, which oversees about $29 billion in Zurich. ``Pricing power is pretty much nonexistent in the industry, so mergers and acquisitions is the way to find growth.''

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Adam Levy in Atlanta at 1305 or adamlevy@bloomberg.net

Last Updated: January 29, 2005 08:20 EST