Even so, operating margins Mr. Lafley projected would hit 24% to
25% by the end of last decade only reached about 22%. Spiking
commodity costs, slower growth in higher-margin beauty and
personal- care businesses (including some from Gillette,) and a
higher mix of business from developing markets all played a
role.
Basically, like almost every deal in P&G history save the
1999 Iams acquisition, Gillette has disappointed in delivering on
its organic sales growth target through its first five years. But
it might just be too soon to tell.
Key pieces of P&G's 1985 acquisition of Richardson-Vicks,
such as Olay and Pantene, didn't really take off until five years
later in the case of Pantene and nearly 15 years later in the case
of Olay. The 1997 acquisition of Tampax foundered on the top line
for more than five years until the launch of Tampax Pearl in
2002.
Ali Dibadj, a Sanford C. Bernstein analyst who worked on the
P&G-Gillette integration as a consultant with McKinsey &
Co., likewise gives the deal a mixed review, with cost cutting
being the clear standout.
Sales growth has been a challenge, he said, in large measure
because of the recession and because "Fusion is pushing the
envelope on what a razor can do" in terms of performance and
getting men to trade up. Similarly, efforts to expand Gillette and
Venus more broadly into personal care have been slower than
expected. But he said P&G did get distribution gains for
Gillette, and vice versa, in key emerging markets.
Executive talent
P&G did learn a lot from Gillette both in terms of cost
efficiency and executing promotional programs at retail, Mr. Dibadj
said. "A lot of the senior management obviously did not stick
around, but the people who did stick around, e.g. Ed Shirley, are
extraordinarily high quality. So I'd say it's still a positive on
the skill set from a management perspective."
Executives of some competitors are less forgiving, contending
P&G overpaid for Gillette and under-delivered on expected
synergies such as the expansion of Gillette and Venus into adjacent
categories. No one, however, disputes that P&G got perhaps the
most-coveted brand in package goods with the Gillette men's shaving
business.
One big and still relatively untapped payout from the deal is
giving P&G access to the half of the consumer market it largely
didn't serve -- men -- Mr. Shirley said. "That's really formed the
potential for Gillette to explore the full potential of the
strongest male brand in the world," he said.
"Before we engaged in the conversations with P&G, we tried
to launch a male skin-care line of our own," Mr. Kilts said. "We
just didn't have the technology or the understanding. ... Part of
it had some traction, but it was really underwhelming. ... The same
with the deodorant business. We just did not have the wherewithal
and technology to be competitive."
Admittedly, the jury is still out on the degree to which P&G
will be able to tap the potential of that combination. Male
personal care is growing, but at least in the U.S., rival Unilever
claims to have captured most of that growth, having accounted for
66% of growth in men's personal care, excluding razors, over the
past five years, said Kathy O'Brien, VP-personal care for Unilever,
citing Nielsen data.
Gillette has launched upgraded deodorants, a new body-wash line
and a new hair-care line since consummating the deal in October
2005. While the deodorants have gained shelf space at club stores
and the body wash has stuck (see related story, P. 9), Unilever's
Axe has grown faster in each category, particularly hair care,
where it soundly beat Gillette despite the latter's head start.
Edge, first under rival SCJ and sold earlier this year to
Energizer, has been taking share from Gillette in shave prep,
too.
But the game is far from over. Part of the ProGlide launch is an
ambitious four-item expansion of Gillette's shave-prep business,
including a warming pre-wash, a cooling after-shave lotion and, in
a fairly bold gambit for U.S. males, a moisturizer with UV
protection.
Asked whether Gillette has been a good deal for Procter &
Gamble Co., the latter's Chairman-CEO Bob McDonald gives an
unqualified yes. But he also noted it would be interesting to look
at the decision by another company not to combine with Gillette.
It's no secret that company is Colgate-Palmolive Co., though
never officially acknowledged by either side by name.
Gillette was in repeated merger talks with Colgate more than two
years before then Gillette Chairman-CEO Jim Kilts approached
P&G, say people close to the companies, with Colgate ultimately
rejecting the deal twice.
First, the rejection came down to price, or valuation, in a
proposed merger of equals, with Colgate rejecting what ultimately
looked like a cash transfer that would have addressed Gillette's
less-than-5% market capitalization advantage, these people say. By
the time P&G bought Gillette less than three years later, the
purchase price valued Gillette at about double what its
shareholders would have gotten in the combination with Colgate at a
time when Colgate was just entering a restructuring induced largely
by a marketplace drubbing from P&G.
By the time the second wave of discussions came in 2004,
following Colgate missing a quarter's earnings target and suffering
a steep share-price decline, the cultural differences were likely
even more of a factor. Gillette proposed an outright acquisition
rather than merger of equals. A person close to Colgate said that
was unacceptable, especially given suspicions that Mr. Kilts would
quickly flip the combined companies to another buyer.
Colgate has little reason to weep. Its stock has risen four
times faster than P&G's in the past five years, and it's been
beating P&G on the top line for more than two years.
But it does raise the question of whether a Gillette-Colgate
merger would have worked better than P&G-Gillette. While Peter
Klein, Mr. Kilts' longtime adviser at Gillette and Kraft, gives the
combination with P&G an unqualified endorsement, he gives a
definite maybe when asked whether Gillette-Colgate would have
worked better.
One key goal in the merger -- to tap "reverse synergies" by
incorporating as much as possible of a Gillette culture widely seen
as a rival to P&G's for success in package goods -- has had
mixed results.
All but one of the most senior managers from Gillette ultimately
left the company, some despite considerable efforts and wooing by
A.G. Lafley and current Chairman-CEO Bob McDonald.
Privately at least, some veteran P&Gers looked down on the
marketing skill set of the incoming Gillette people. Some of the
incoming Gillette people found the P&Gers remarkably resistant
to new ideas.
Deutsche Bank analyst Bill Schmitz has contrasted a Gillette
culture where "giving it the old college try" was acceptable, to a
P&G culture where no defeat or loss of market share is really
tolerated. "It's not a culture. It's a cult," said one former
Gillette executive who tried to stick it out but ultimately left.
But not all P&Gers drink the Kool-Aid, or they at least take it
with a substantial grain of salt. And in the case of two senior
Gillette executives who were much prized by P&G, either family
or personal illness was the reason for their departures, not
cultural incompatibility.
The rest of the Gillette people have either left or adapted.
Some have done the latter quite nicely, including the company's top
executive in Germany, its top media executive in China, and most
notably P&G Vice Chairman Ed Shirley, a career Gillette
executive who's now vice chairman of over a third of P&G's
business: beauty and grooming. At 53, Mr. Shirley is three years
younger than Mr. McDonald, and as such has probably the best shot
at one day being CEO.
He's been spearheading a reorganization of his businesses along
male and female consumer lines rather than the traditional category
and brand structure. And he's made inroads in what looked to be a
huge problem when he took charge -- beauty businesses that, despite
steep acquisition prices or heavy ad investments, were losing
momentum and share to global rivals. Organic sales growth of the
P&G beauty business has steadily risen on Mr. Shirley's watch
to 4% last quarter, which, while still lagging such rivals as
Colgate-Palmolive Co. or Unilever's personal-care business, has
lately been beating another key rival: L'Or?al.
"Culturally, it was a challenge," he said. "But ... I saw it
almost as sport that I'm not going to let some of the long-lived
cultural aspects get in my way. "
"A lot of the people who left were going to retire and leave
anyway in the short term," said former Gillette Chairman-CEO Jim
Kilts. "And I think we seeded the company with some great talent
down in the organization, so time will tell."