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Gillette
Type: Subsidiary (Preferred Investment) Acquired: 1989 ($600 Million Convertible Preferred) Key People: Warren Buffett (Board Member)
📖 Overview
In 1989, Berkshire Hathaway invested $600 million in The Gillette Company in the form of convertible preferred stock. This capital was part of a larger strategy in the late 1980s where Buffett provided "Supportive, Analytical, and Objective" capital to legacy American brands facing various pressures.
🧠 The Investment Logic
Buffett describes Gillette as a company with a powerful Consumer Franchise and a dominant global market share in razors and blades.
- Convertible Preferred Structure: The investment paid a dividend (8.25%) and was convertible into common stock at a later date. This provided downside protection while allowing Berkshire to participate in the "Wonderful Business" economics if the company thrived.
- The "Great Horse": Buffett used the horse/rider analogy to describe Gillette and its management. Unlike USAir or Champion, Gillette was viewed as a "great horse" (high-quality business) rather than just a "good horse."
💬 Direct quotes
- "Gillette is a world-class business with a world-class management team." — 1989 Letter
- "We like the 'Supportive, Analytical, and Objective' role we play with management."
1993 Update
Buffett frequently cited Gillette alongside Coca-Cola as the ultimate example of a company with an impenetrable Moat. In 1993, he noted that Gillette held over a 60% share (by value) of the worldwide blade market, a share that had actually been increasing in recent years. Their brand strength, product attributes, and distribution gave them an enormous global competitive advantage.
🔄 Historical Context
This investment, alongside USAir and Champion International, signaled a shift toward larger-scale equity-linked debt investments in major public corporations.
📚 Historical Mentions & Citations (6)
Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.
📜1989 LetterExcerpt Available▼
1989 LetterExcerpt Available
The proceeds from our bond sales, along with our excess cash at the beginning of the year and that generated later through earnings, went into the purchase of three convertible preferred stocks. In the first transaction, which took place in July, we purchased $600 million of The Gillette Co. preferred with an 8 3/4% dividend, a mandatory redemption in ten years, and the right to convert into common at $50 per share. We next purchased $358 million of USAir Group, Inc. preferred stock with mandatory redemption in ten years, a dividend of 9 1/4%, and the right to convert into common at $60 per share. Finally, late in the year we purchased $300 million of Champion International Corp. preferred with mandatory redemption in ten years, a 9 1/4% dividend, and the right to convert into common at $38 per share.
Unlike standard convertible preferred stocks, the issues we own are either non-salable or non-convertible for considerable periods of time and there is consequently no way we can gain from short-term price blips in the common stock. I have gone on the board of Gillette, but I am not on the board of USAir or Champion. (I thoroughly enjoy the boards I am on, but can’t handle any more.)
📜1993 LetterExcerpt Available▼
1993 LetterExcerpt Available
These gains, however, were outstripped by a much larger gain—39%—in Berkshire’s market price. Over time, of course, market price and intrinsic value will arrive at about the same destination. But in the short run the two often diverge in a major way, a phenomenon I’ve discussed in the past. Two years ago, Coca-Cola and Gillette, both large holdings of ours, enjoyed market price increases that dramatically outpaced their earnings gains. In the 1991 Annual Report, I said that the stocks of these companies could not continuously overperform their businesses.
From 1991 to 1993, Coke and Gillette increased their annual operating earnings per share by 38% and 37% respectively, but their market prices moved up only 11% and 6%. In other words, the companies overperformed their stocks, a result that no doubt partly reflects Wall Street’s new apprehension about brand names. Whatever the reason, what will count over time is the earnings performance of these companies. If they prosper, Berkshire will also prosper, though not in a lock-step manner.
📜1994 LetterExcerpt Available▼
1994 LetterExcerpt Available
The businesses in which we have partial interests are equally important to Berkshire’s success. A few statistics will illustrate their significance: In 1994, Coca-Cola sold about 280 billion 8-ounce servings and earned a little less than a penny on each. But pennies add up. Through Berkshire’s 7.8% ownership of Coke, we have an economic interest in 21 billion of its servings, which produce “soft-drink earnings” for us of nearly $200 million. Similarly, by way of its Gillette stock, Berkshire has a 7% share of the world’s razor and blade market (measured by revenues, not by units), a proportion according us about $250 million of sales in 1994. And, at Wells Fargo, a $53 billion bank, our 13% ownership translates into a $7 billion “Berkshire Bank” that earned about $100 million during 1994.
Today, Berkshire’s situation has reversed: Many of the businesses we control are worth far more than their carrying value. (Those we don’t control, such as Coca-Cola or Gillette, are carried at current market values.) We continue to give you book value figures, however, because they serve as a rough, albeit significantly understated, tracking measure for Berkshire’s intrinsic value. Last year, in fact, the two measures moved in concert: Book value gained 13.9%, and that was the approximate gain in intrinsic value also.
📜1995 LetterExcerpt Available▼
1995 LetterExcerpt Available
| Shares | Company | Cost | Market |
| :--- | :--- | :---: | :---: |
| 49,456,900 | American Express Company | $1,392.7 | $2,046.3 |
| 20,000,000 | Capital Cities/ABC, Inc. | 345.0 | 2,467.5 |
| 100,000,000 | The Coca-Cola Company | 1,298.9 | 7,425.0 |
| 12,502,500 | Federal Home Loan Mortgage Corp. (“Freddie Mac”) | 260.1 | 1,044.0 |
| 34,250,000 | GEICO Corp. | 45.7 | 2,393.2 |
| 48,000,000 | The Gillette Company | 600.0 | 2,502.0 |
| 6,791,218 | Wells Fargo & Company | 423.7 | 1,466.9 |
| | Others | 1,379.0 | 2,655.4 |
| | Total Common Stocks | $5,745.1 | $22,000.3 |
Our best holding has been Gillette, which we told you from the start was a superior business. Ironically, though, this is also the purchase in which I made my biggest mistake—of a kind, however, never recognized on financial statements.
📜1997 LetterExcerpt Available▼
1997 LetterExcerpt Available
| Berkshire’s Major Investees | Berkshire’s Approximate Ownership at Yearend(1) | Berkshire’s Share of Undistributed Operating Earnings (in millions)(2) |
| :--- | :---: | :---: |
| American Express Company | 10.7% | $161 |
| The Coca-Cola Company | 8.1% | 216 |
| The Walt Disney Company | 3.2% | 65 |
| Freddie Mac | 8.6% | 86 |
| The Gillette Company | 8.6% | 82 |
| The Washington Post Company | 16.5% | 30 |
| Wells Fargo & Company | 7.8% | 103 |
| | Berkshire’s share of undistributed earnings of major investees | 743 |
| | Hypothetical tax on these undistributed investee earnings(3) | (105) |
| | Reported operating earnings of Berkshire | 1,292 |
| Total look-through earnings of Berkshire | $1,930 | |
Instead, our problem has been that we own a truly marvelous collection of businesses, which means that trading away a portion of them for something new almost never makes sense. When we issue shares in a merger, we reduce your ownership in all of our businesses—partly-owned companies such as Coca-Cola, Gillette and American Express, and all of our terrific operating companies as well. An example from sports will illustrate the difficulty we face: For a baseball team, acquiring a player who can be expected to bat .350 is almost always a wonderful event—except when the team must trade a .380 hitter to make the deal.
📜2004 LetterExcerpt Available▼
2004 LetterExcerpt Available
Insurers have generally earned poor returns for a simple reason: They sell a commodity-like product. Policy forms are standard, and the product is available from many suppliers, some of whom are mutual companies (“owned” by policyholders rather than stockholders) with profit goals that are limited. Moreover, most insureds don’t care from whom they buy. Customers by the millions say “I need some Gillette blades” or “I’ll have a Coke” but we wait in vain for “I’d like a National Indemnity policy, please.” Consequently, price competition in insurance is usually fierce. Think airline seats.
12/31/04 Shares Company Percentage of Company Owned Cost Market (in $ millions) 151,610,700 American Express Company 12.1 $1,470 $ 8,546 200,000,000 The Coca-Cola Company 8.3 1,299 8,328 96,000,000 The Gillette Company 9.7 600 4,299 14,350,600 H&R Block, Inc 8.7 223 703 6,708,760 M&T Bank Corporation 5.8 103 723 24,000,000 Moody’s Corporation 16.2 499 2,084 2,338,961,000 PetroChina “H” shares (or equivalents) 1.3 488 1,249 1,727,765 The Washington Post Company 18.1 11 1,698 56,448,380 Wells Fargo & Company 3.3 463 3,508 1,724,200 White Mountains Insurance 16.0 369 1,114 Others 3,531 5,465 Total Common Stocks $9,056 $37,717