Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) said today that it has reached a definitive agreement with The Procter & Gamble Company (NYSE:PG) to acquire its Duracell battery business.
The transaction is anticipated to close in the second half of next year.
Duracell – P&G already announced separation
As reported, The Procter & Gamble Company (NYSE:PG), a Cincinnati, Ohio based consumer goods company, indicated last month its intention to dissociate Duracell. P&G acquired Duracell in 2005 as part of Gillette. However, the consumer goods company expressed its intention to create a stand-alone Duracell company in order to “maximize value to P&G’s shareholders and minimize earnings per share dilution”.
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The consumer goods company used to have products ranging from pet food to snacks to personal hygiene products. As the company is in the process of shedding brands to retain focus, its CEO A.G. Lafley indicated in August that paring down P&G brands would result in a “much simpler, much less complex company of leading brands that’s easier to manage and operate”.
Duracell – Low-down on the deal
In the deal announced today, Warren Buffet’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) has agreed to buy the Duracell battery business from The Procter & Gamble Company (NYSE:PG). As part of the agreement, in exchange for a recapitalized Duracell, which will include approximately $1.7 billion in cash at closing, Procter & Gamble will receive shares of The Procter & Gamble Company (NYSE:PG)’s common stock currently held by Berkshire Hathaway having a current value of approximately $4.7 billion.
The agreement also envisages P&G injecting $1.8 billion in cash into Duracell.
Highlighting the synergy of the acquisition, Warren Buffet said: “I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette”. He added: “Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway”.
Dr. David Kass, Department of Finance, Robert H. Smith School of Business, University of Maryland, noted:
This is very similar to its recent deals for subsidiaries of Phillips 66 (PSX) and Graham Holdings (GHC) which were tax efficient transactions.
Following the announcement, shares of The Procter & Gamble Company (NYSE:PG) edged higher in early market trading.