Duracell to be Acquired By Berkshire Hathway
Super Charged For Success: Duracell to be Acquired By Berkshire Hathway
Reuters has reported that Berkshire Hathway had agreed to acquire Procter and Gamble’s Duracell battery unit in a complicated transaction. Berkshire Chairman Warren Buffet will be purchasing the business he has supported for 2 decades and get tax benefits too.
Instead of cash for this transaction, Berkshire Hathway will be giving P&G USD 4.7 billion of the shares it owns in what is the largest consumer products company in the world. P&G will also infuse USD 1.8 billion in cash into Duracell prior to the expected closing during the latter half of 2015.
The transaction was announced on Thursday, 13th November. P&G CEO A. G. Lafley streamlined his company by eliminating the slow moving brands and orienting growth and focus on 80 brands for the generation of most of the profit and revenue. Its better known brands include Tide and Pampers. Meanwhile, Reuters has reported that the acquisition helps Buffet eliminate a massive tax bill.Shares of both companies have now hit record highs following this week.
Berkshire has indicated that it has paid USD 336 million for a 1.9% stake in P&G which equals 52.8 million shares on June 30th. Given he 35% tax rate on corporate capital gains, this swap would save the company around more than USD 1 billion says Reuters. Berkshire’s income tax bill equalled 31% of pretax earnings.
Duracell is known for its distinctive copper coloured top batteries. Buffet will now add this unit to his repertoire of around 80 businesses. "I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette," Buffett said in a statement quoted by Reuter. Billionaire Warren Buffet has plenty of cash to make more acquisitions.
Many news outlets such as Bloomberg and Reuters have highlighted how this deal is similar to the one where Buffet’s Berkshire Hathway had acquired an energy subsidiary firm called Phillips 66 earlier in the year.
The P&G stake stood at the forefront ready to be taken. In last year’s letter to Berkshire Hathaway shareholders as cited by TIME Magazine, Buffett wrote that “more than 50 years ago, Charlie [Munger] told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.” The current acquisition seems to be just that- an excellent business for a fair price or so it seems. Duracell of course is a market leader with innovation and technology that keeps advancing. For its brand value alone, Buffet has made another winning acquisition.
Buffet has always been one step ahead of the market and this accounts for the grand success of Berkshire Hathway. The latter company owns many winning businesses such as Heinz and it is certainly not stopping at the Duracell acquisition. Trends seem to indicate that Berkshire Hathway is always on the move when it comes to strategic acquisitions and Duracell is no exception to this rule.
