52 THE WARREN BUFFETT WAY
market is 72.5 percent, almost six times greater than the nearest com-
petitor. The company has a 70 percent market share in Europe, 80 per-
cent in Latin America. Sales are just beginning to grow in Eastern
Europe, India, and China. For every one blade that Gillette sells in the
United States, it sells f ive overseas. In fact, Gillette is so dominant
worldwide that in many languages its name has become the word for
“razor blade.”
Buffett became interested in Gillette in the 1980s. Wall Street ob-
servers had begun to see the company as a mature, slow-growing con-
sumer company ripe for a takeover. Prof it margins hovered between
9 percent and 11 percent, return on equity f lattened out with no sign of
improvement, and income growth and market value were anemic (see
Figures 4.1 and 4.2). In short, the company appeared stagnant.
CEO Colman Mockler fought off four takeover attempts during
this time, culminating in a hotly contested battle against Coniston Part-
ners in 1988. Gillette won—barely—but in so doing obligated itself to
buy back 19 million shares of Gillette stock at $45 per share. Between
1986 and 1988, the company replaced $1.5 billion in equity with debt,
and for a short period Gillette had a negative net worth.
At this point Buffett called his friend Joseph Sisco, a member of
Gillette’s board, and proposed that Berkshire invest in the company.
“Gillette’s business is very much the kind we like,” Buffett said.
Figure 4.1 The Gillette Company return on equity.