Jim Kilts rebuilt Gillette's margins and doubled profit, then sold it to P&G

When James Kilts arrived, Gillette had spent years shrinking relative to its promise. Reported net income had fallen from $1,260m in 1999 to $392m in 2000 — a year in which the company booked a $428m loss on disposing of discontinued operations — and income from continuing operations slid to $821m from $1,248m two years earlier. Restructuring and asset impairment charges sat in the accounts, Duracell had underperformed badly, and successive managers had missed growth targets.

The board went outside for the fix. On January 19, 2001 it elected Kilts — the former chief executive of Nabisco Group Holdings, who had just sold it — as chairman, and he took the chief executive's office in February 2001. His program treated the P&L as the product: less money locked into trade promotions, coupons and discounts, more into advertising and product innovation behind the razor, oral care and battery franchises. The reversal showed up in the spending mix first: by 2004 advertising investment was running 40% above 2003 and almost 80% above the level of two years earlier.

The numbers turned and kept compounding. Net sales rose 13% to $10.5bn in 2004 from $9.3bn in 2003, the year net income had already grown 22%; 2004 net income reached $1,691m, up 16%, with diluted earnings per share up 24%. Duracell, the deal-driven acquisition that had dragged for years, delivered strong sales and profit growth behind the 2003 Nanfu acquisition in China.

On January 27, 2005 Gillette signed a merger agreement with Procter & Gamble under which each Gillette share would convert into 0.975 P&G shares — the outcome of a rebuild that made the company worth buying at the top of its form.

Net income rose from $910m in 2001 to $1,691m in 2004; net sales grew 13% to $10.5bn; P&G paid 0.975 share per Gillette share in a 2005 merger.

The company's problem was value capture, not demand: decades of trade promotion had taught retailers to extract margin that should have funded brands.

Shifting the same dollars from discounts into advertising and innovation made the premium razor franchise compound instead of churn.

An outsider CEO with no stake in past excuses could cut trade deals and legacy structures without negotiating against his own history.

Kilts was hired after a demonstrated exit — the Nabisco sale — so both the board and he were aligned on fixing first and monetizing later.

A branded consumer business in trouble rarely needs a new market — it needs its promotional money back: cut costly trade deals, fund real advertising and innovation, and let the brand reprice.

The merger P&G signed in January 2005 folded Gillette's blade, oral care and Braun businesses into the world's largest consumer-goods company, with each Gillette share converting into 0.975 P&G shares. Kilts, who signed his renewable three-year employment agreement effective January 19, 2001, left the combined company in 2005. The turnaround's financial record — three consecutive years of double-digit earnings growth into a $1.69bn profit — is what set the sale price.