Procter & Gamble Reportedly Eyed Gillette Merger

After an unsolicited bid for Gillette (G Quote) was rejected, Procter & Gamble (PG Quote) appears to be turning to drugs, according to a Wall Street Journal report Monday.

The report said P&G chief Durk Jager, who has promised big changes at the sometimes stodgy consumer products giant, decided not to aggressively pursue the French company best known for its razor blades, and instead looked to other possible acquisition targets.

The targets turned out to be American Home Products (AHP Quote) and Warner-Lambert (WLA Quote), and talks with P&G are said to have continued through the weekend.

Many expect an announcement will come possibly as soon as Monday.

Rumors and speculation over a possible takeover of the drug makers by P&G have circulated for over a week, and have hurt shares of P&G as investors have questioned the sometimes risky and always cut-throat drug trade. P&G shares dropped nearly 9% last Friday, and are seen opening lower Monday.

If a deal is announced, P&G could be seen as a white knight who comes to break up what has become a bitter battle between drug maker Pfizer (PFE Quote) and Warner-Lambert. After agreeing to a $57 billion purchase of AHP in early November, Warner-Lambert has been locked in a battle after it repeatedly rejected a $79 billion bid from Pfizer. Warner-Lambert reluctantly decided on Jan. 13 to negotiate with Pfizer.

The purchase would be P&G's largest acquisition ever, and would essentially mark its entry into the pharmaceuticals business, which currently accounts for only about 2% of its business.

Cincinnati-based P&G is best known for its tried and true consumer products lines such as Tide detergent, Crest toothpaste and Scope mouthwash, while Morris Plains, N.J.-based Warner-Lambert's lines include Sudafed and Listerine mouthwash. AHP has the popular over-the-counter pain relievers Advil and Anacin, and prescription hormone drug Premarin.

Last year, P&G bought pet food maker Iams for $2.3 billion.