THE PROCTER & GAMBLE CO. $58 (New York symbol PG; WSSF Rating: Above average) is one the world’s largest makers of beauty, personal care and household products. It currently has 22 brands that each generate over $1 billion a year in sales. North American accounts for half of its sales.

In October 2005, Procter acquired The Gillette Company, which makes a variety of consumer products such as razors, dental products and batteries. These products nicely complement Procter’s brands, and tend to earn higher profit margins.

Procter paid $57 billion in stock for Gillette. But an aggressive stock buyback plan means it really financed 40% of the deal with cash.

This is a huge purchase for Procter, which earned $0.77 a share (total $2.0 billion) in its first fiscal quarter ended September 30, 2005, excluding Gillette. It earned $0.70 a share ($1.9 billion) a year earlier. Sales rose 8.0%, to $14.8 billion from $13.7 billion, mainly due to strong growth in developing countries.

The acquisition should add over $10 billion to Procter’s annual sales. It will probably take Procter three years to integrate Gillette, but combining purchasing, manufacturing and administrative operations should cut its annual costs by up to $1.2 billion by the end of the third year.

Procter also feels it can increase Gillette’s sales by $750 million a year, just by using its extensive international operations to expand its presence overseas. Demand for Gillette’s razors and other products in countries like China, Russia and Mexico is rising as economic prosperity spreads.

Procter now trades at 22.4 times the $2.59 a share it should earn in fiscal 2006. That leaves it vulnerable if the merger benefits come more slowly than anticipated. The $1.12 dividend yields 1.9%.

Procter & Gamble is a hold.