By Cliff Peale
The Cincinnati Enquirer

STAMFORD, Conn. - Procter & Gamble Co. executives and lawyers descended on midtown Manhattan in January 2001 on a decade-old mission, code-named Prism. Their target: Clairol. At the Park Avenue offices of Bristol-Myers Squibb Co., the drug company that had put the hair-color pioneer on the selling block five months before, they heard Clairol's top execs analyze the business.

"We weren't surprised, because we knew they were interested in hair color," said Jeanne Matson, general manager of Clairol's professional business and one of the presenters to the P&G team that day. "The belief was that Procter would be a serious bidder."

Four months later, P&G announced that it would pay $4.95 billion for Clairol, double the price of any acquisition in its 165-year history. The deal closed Nov. 15, 2001. The next day, P&G management reported to Clairol's campus here, already fully in charge.

CLAIROL TIMELINE

• 1931: Clairol incorporated. • September 2000: Clairol is put on the selling block by Bristol-Myers Squibb Co. • January 2001: A team of Clairol executives describes the business to potential bidders. • May 21, 2001: P&G announces a deal to buy Clairol for $4.95 billion. • Nov. 7, 2001: The U.S. Department of Justice approves deal. • Nov. 15, 2001: The deal closes, and P&G takes over Clairol's Stamford, Conn., campus. • May 1, 2002: P&G completes integration of the ordering and shipping systems worldwide. • Sept. 16, 2002: P&G unveils its first major advertising campaign for Clairol, called "Colorwonderful."

It was another step in the remaking of Cincinnati's largest corporation into a beauty care and health care giant, putting P&G into a high-growth business in home hair color, and adding trendy names such as Herbal Essences.

A year later, most of the integration of Clairol into P&G is finished.

A slide in Clairol hair-color sales, a product of years of low investment from Bristol-Myers, has been stemmed if not yet reversed. P&G has said it will cut more than 2,300 Clairol jobs, put a new advertising campaign on the air and will soon introduce 11 new shades of Nice 'n Easy hair color.

P&G has unquestionably benefited from the acquisition, which has accelerated the company's transition to more health- and beauty-care businesses, higher-growth categories that draw new investors. Since the deal closed, P&G's stock price has increased about 13 percent, to about $87 per share.

The yearlong integration effort also shows that P&G has benefited from the many lessons from its biggest acquisitions of the past, from the Richardson-Vicks health-care business in 1985 to the Iams pet-food brand in 1999.

The two most prominent lessons:

Identifying what makes the deal work for shareholders - in the case of Clairol, $200 million in annual cost savings - and making that the priority.

Protecting the acquired company's most attractive assets: its best people.

"Even with the pressures for the synergies, which were pretty high, we didn't want to throw the baby out with the bathwater," said Rob Matteucci, the P&G hair-care veteran who headed the integration team and now is head of the company's hair-color division in Stamford.

With 90 percent of the cost-cutting plans either done or in place, P&G has turned to the second task at Clairol, growing the business. Sales will be flat and profits will grow for the fiscal year that ends June 30, 2003, Mr. Matteucci said.

"Right now, it's clear to me that our focus is on taking the existing retail color brands and driving them to their potential," he said.

The inside story of the Clairol acquisition and integration emerged from interviews with top executives at Clairol in Stamford and at P&G headquarters in Cincinnati.

That story started in the early 1990s, when P&G started planning to get into the hair-color business, with a sharp eye on Bristol-Myers and Clairol.

It includes the acquisitions of Tambrands Inc. in 1997 (a mediocre showing so far) and Iams in 1999 (a home run with the brand's explosive growth). Those deals showed the company's growing focus on health care, including Iams, and beauty care brands.

And the tale climaxes with P&G's urgent need for revenue growth - Clairol added $1.6 billion a year to P&G's more than $39 billion - to satisfy Wall Street investors.

Bruce Byrnes, P&G's vice chairman and head of global health care and beauty care, was a member of the team visiting the Bristol offices in January 2001.

"I was delighted they were able to pull off what they did," he said of the integration team. "You never really know what the full state of the business is, until you get inside it."

`A bit patient'

P&G's representatives had a long wait before they could get inside the gates here, about an hour's train ride north of New York.

Starting in the early 1990s, hair-care executives in Cincinnati had predicted that hair coloring would become a trend, and had focused on a small number of potential partners.

They also started testing some technologies in the detergent unit, hoping that they could export the research and develop their own hair color. But P&G quickly came to the conclusion that hair color wasn't a "core competency," and it would take too long to develop internally.

"We felt it would be best if we did it with a partner, and we felt it would be best if we did it with Clairol," said Mr. Matteucci, who became head of hair care strategic planning in Cincinnati in 1992. "It wasn't necessarily the only candidate, but it was a great candidate.

"We had to be a bit patient."

Meanwhile, Clairol's hair-color business was proving to be a cash cow for Bristol-Myers, which makes products including Excedrin pain reliever and the Enfamil infant formula. But in the mid-1990s, the drug company started squeezing its marketing investments in Clairol, and rumors circulated broadly that the hair-color giant was for sale.

But it was more than hair color. Clairol president Steve Sadove had helped create Herbal Essences shampoo. That had turned into one of the fastest-growing consumer brands of the 1990s, thanks to cutting-edge advertising, new fragrances and colorful packaging.

The rumors about a sale of Clairol persisted, but it wasn't until September 2000 that Bristol-Myers officially announced it would sell Clairol. That put the gears into motion at P&G headquarters in Cincinnati, with a due diligence team headed by chief financial officer Clayton Daley.

"That was a defining moment," Mr. Matteucci said. "There's only a limited window there."

Both companies gave the project code names: "Prism" for P&G and "Baton" for Bristol-Myers.

The due diligence team dug into Clairol's business in New York in early 2001. Ms. Matson, on the Clairol team there, remembers that P&G brought many more people - including Mr. Byrnes - than any other potential bidder and that they were incredibly organized about the records.

The company also sent several dozen people to a "data room" at a New York law firm. There, they and other bidders dug through Clairol's financials. Prohibited from taking or copying documents, they resorted to scribbling notes on legal pads.

Kao Corp. of Japan - owner of Cincinnati's Andrew Jergens Co. - was another major bidder. The bidding war progressed through early May 2001, but P&G didn't publicly speak about Clairol until May 21, when it announced that it had agreed to pay $4.95 billion in cash.

The next day, P&G chief executive A.G. Lafley called Mr. Matteucci, who had migrated into the company's snacks business, and asked him to lead the integration team.

He recruited (or "extracted," in Mr. Matteucci's words) about a dozen of the best people he could find and set up shop in an office next to the company cafeteria on the fifth floor of P&G's headquarters downtown. That included calling several people on vacation, and in one case, delaying a retirement announcement.

Each member had a sub-team in his or her specialty, and each team had a "mirror team" at Bristol-Myers. One thing that was forbidden was sharing details with Clairol, which was still a competitor.

"We had to be very careful what we talked about," Mr. Sadove said of his conversations with Mr. Matteucci. "We never talked about the business; we only talked about integration issues."

The complexities mounted almost immediately.

To get to a planned November closing date, Mr. Matteucci's team needed to dissect everything from rental agreement for Clairol offices in 55 countries to Clairol sales teams that were mixed with other Bristol-Myers products. (For example, P&G ended up handling sales of some products after the deal closed, until the organizations could be pulled apart.)

"It kind of blew our mind how interwoven everything was," he said. "Probably our biggest challenge was unplugging the things tied to Bristol-Myers and Clairol, and plugging them back into P&G."

To "dimensionalize" the task - a favorite P&G term for gauging the size of a project - the team created a flow chart of all the jobs needing attention. The chart includes thousands of specific tasks, and stretches across Mr. Matteucci's spacious Stamford office.

The biggest hurdle was U.S. antitrust approval from the Department of Justice, which came Nov. 7. After that, it took only eight days to close the deal. Mr. Matteucci went to New York and signed the $4.95 billion contract. "I still have the pen," he said earlier this month.

The hard part lay ahead.

A first look inside

What P&G found when it got its first look inside the Clairol campus was part good and part bad.

On the positive side, the Herbal Essences shampoo brand was stronger than P&G thought. Long known among consumers for its cutting-edge, sexually tinged advertising, Herbal Essences has turned out to be a star.

The franchise also included new fragrance technologies and packaging that could spread to other P&G brands, Mr. Byrnes said.

"Our people might have been overly dismissive of Herbal Essences at first," he said.

Clairol's Mr. Sadove, now vice chairman of retailer Saks Inc., said the company provided consistent profits and sales growth for Bristol-Myers throughout the 1990s. Herbal Essences, which Clairol revitalized in 1995, was a shining result of that growth, he said.

But he also foresaw another surprise for P&G: the effect of low investment from Bristol-Myers.

"I don't think anyone would say we had invested enough in the hair-color business to keep it growing," said Mr. Sadove, who was in Stamford with Mr. Matteucci and Mr. Lafley the day after the deal closed. Like many presidents of acquired companies, he left within a few weeks. "There are phenomenal opportunities for those brands with appropriate investment."

Only about three other top Clairol executives left with Mr. Sadove, and about three-quarters of the current leadership team was there before the acquisition.

P&G knew that Clairol had been neglected by Bristol-Myers for several years, with no new ad campaigns or innovation. But the slide in sales alarmed Procter execs. During the acquisition and integration period, sales slid 5 percent.

"I don't think we fully realized how much the business had been hit, and how much we'd have to dig out of that," Mr. Byrnes said.

Another surprise came with some of the lower-tier Clairol hair-care brands, including Daily Defense and Renewal 5X. P&G might once have considered a sale of those brands, but instead, they have rounded out the lower level of the company's shampoo offerings.

That portfolio now starts at about $2 or $3 a bottle and extends to premium products such as Pantene and Physique.

"Each has its own distinctive positioning," Mr. Byrnes said. "If you get the packaging right, get the message right, get the fragrance right, you can really segment the market."

One of P&G's first moves was new advertising for Clairol hair color - "Colorwonderful," the ads say.

"Certainly, if you turned on the television this fall, you saw Clairol everywhere," said Paul Scoggins, group manager of North American color marketing in Stamford. "We did more pieces of creative (advertising) ... in a three-month period than we had in the last three or four years."

And in February, 11 new shades of the flagship Nice 'n Easy home hair-color kits will hit store shelves, using technology drawn from P&G's detergent business.

The "copper-blocking" science - this is its first time used in hair color - helps fibers retain their normal color after interacting with water, enabling new colors like champagne blondes and caramel browns, said Wilbur Strickland, global director of beauty care research and development. The same research enables fabrics to retain their color in the wash.

That lesson - investing in the innovation immediately - is one P&G could have learned from its acquisition of Tampax tampons in 1997. It took the company close to five years before it introduced a significant improvement this year, and Tampax market shares have suffered during that period.

P&G had been working on the copper-blocking technology in a small-town test in Egham, England. After buying Clairol, it closed that test and ramped up research and development in Stamford.

"In Egham, the connections started to become more apparent," Mr. Strickland said. "We said to ourselves, `The hair is a fiber, and we know a lot about that.'"

Cutting down

As those connections became apparent, P&G management faced the difficult task of cutting the overlapping tasks of the two organizations. It had committed to $200 million in annual savings, and it was that number that would make the acquisition economics work, Mr. Byrnes said.

That was different than some previous P&G acquisitions, he said. For example, the success of P&G's 1999 purchase of Iams pet food depended on getting Iams into stores like Wal-Mart and Kroger. That business expansion took first priority over integrating the systems, some of which still aren't complete three years later.

Not so with Clairol. The first day after closing the deal, about 3,600 Clairol employees were on the P&G payroll. By May 1, 2002, the ordering and shipping systems were integrated around the world, so a retailer could stock P&G's Pantene and Clairol's Herbal Essences on the same order.

P&G pledged to spend the first 90 days studying which people and plants it wanted to keep, and which should be closed. In January, Mr. Matteucci announced more than 1,400 job cuts, including about 460 in Stamford. In March, the news came that four Clairol plants would close but that the plant attached to the Stamford headquarters building would remain open.

Overall, there will be about 2,365 jobs eliminated, which will put P&G about 90 percent toward its cost-cutting goal, Mr. Matteucci said.

"The heavy lifting should be done by mid-2003," he said.

The shampoo and conditioner operations - research and development, manufacturing, marketing and others - were consolidated to former P&G sites. What remains in Stamford is the global hair-color operations.

Mr. Matteucci, a Cincinnati native, said Clairol is now "one team with one dream."

What is left is a business primed for growth in a fragmented marketplace that is growing about 5 percent a year.

"Clairol is more exciting than what we thought," Mr. Byrnes, P&G's vice chairman, said. "But we still have to prove it in the marketplace."

E-mail cpeale@enquirer.com