Buffet Buys Duracell from P&G

Did Warren Buffet pull one over on Procter & Gamble? Berkshire Hathaway will acquire the Duracell battery business in a deal valued at $4.7 billion. But P&G won't stash any cash from the transaction; instead, P&G will execute a split transaction, in which it will exchange a recapitalized Duracell Company for Berkshire Hathaway’s shares of P&G stock. Investors, including the pesky Bill Ackman, probably would have preferred a Duracell spin-off, according to analysts. For what it's worth, Buffet is bullish on the battery brand.

“I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette,” commented Warren E. Buffett, Berkshire Hathaway chief executive officer. “Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway.”

Berkshire’s stock ownership is currently valued at approximately $4.7 billion. P&G said it expects to contribute approximately $1.8 billion in cash to the Duracell Company in the pre-transaction recapitalization.

P&G said the transaction maximizes the after-tax value of the Duracell business and is tax efficient for P&G. The value received for Duracell in the exchange is approximately 7-times fiscal year 2014 adjusted EBITDA. This equates to a cash sale valued at approximately 9-times adjusted EBITDA.

As part of the exit of the battery business, P&G announced that it closed the sale of its interest in a China-based battery joint venture earlier in the week.

Based on the signing of the contract to exit the Duracell business, P&G will restate Batteries results to discontinued operations effective with the reporting of October-December 2014 quarterly results. The Company expects to restate earnings per share of approximately $0.12 to $0.14 to discontinued operations for fiscal year 2014. All-in GAAP earnings per share are not affected by the restatements.

P&G said it will incur a non-core, non-cash charge of approximately $0.28 per share in current quarter results to adjust Duracell goodwill and intangible assets to the expected after-tax transaction value. P&G expects to finalize the restatement and one-time charge amounts in the next few weeks, and will update shareholders when final amounts are available.
P&G said it expects to close the Duracell transaction in the second half of calendar year 2015 pending necessary regulatory approvals.