Buffett's Berkshire Hathaway buys P&G's Duracell

Thu Nov 13, 2014 3:44pm EST
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By Jonathan Stempel and Devika Krishna Kumar

(Reuters) - Berkshire Hathaway Inc has agreed to acquire Procter & Gamble Co's Duracell battery unit in a complex transaction that lets Berkshire Chairman Warren Buffett buy a business he has supported for two decades and shave his company's tax bill.

Rather than pay cash, Berkshire (BRKa.N: Quote) will give P&G $4.7 billion of the shares it now owns in the world's largest consumer products company. P&G (PG.N: Quote) will infuse $1.8 billion in cash into Duracell before the expected closing in the second half of 2015.

The transaction announced on Thursday helps P&G Chief Executive A.G. Lafley streamline his Cincinnati-based company by shedding slow-growing brands and focus on about 80 brands that generate most of its profit and revenue. P&G's better-known products include Tide laundry detergent and Pampers diapers.

Buffett, meanwhile, avoids a big tax bill that Omaha, Nebraska-based Berkshire might have incurred if it sold its P&G shares. Both P&G and Berkshire shares hit a record high this week.

Buying Duracell is a "brilliant move," said Doug Kass, who runs Seabreeze Partners Management in Palm Beach, Florida, and is a longtime Berkshire critic who is selling its shares short.

"Warren loves mature and durable consumer brands that produce predictable cash flow. Duracell fits the bill," Kass added. "And accomplishing this in a tax-efficient transaction."

Berkshire has said it paid just $336 million for its 1.9 percent stake in P&G, equal to 52.8 million shares on June 30.

Assuming a 35 percent tax rate on corporate capital gains, the swap could save Berkshire more than $1 billion, on top of tax savings from two similar transactions earlier this year.   Continued...

Berkshire Hathaway CEO Warren Buffett listens to a shareholder  in Omaha, Nebraska May 4, 2014. REUTERS/Rick Wilking