Berkshire Hathaway (BRK.B) announced this morning that it has entered into a deal to acquire the iconic Duracell battery brand from consumer goods giant Procter & Gamble Co (PG). Under the terms of the agreement Procter & Gamble will recapitalize Duracell Company, which will have $1.7 billion in liquid cash on its balance sheet at the time of closing.
In exchange for its Duracell division, P&G will receive $4.7 billion worth of PG stock that Berkshire Hathaway already holds in its own portfolio.
Berkshire Hathaway, of course, is the financial holding company and brainchild of Warren Buffett, probably the single greatest investor of the 20th century and perennially one of the 10 Richest People in the World.
Buffett made his billions by using Berkshire Hathaway — which was a textile manufacturing company when Buffett began snatching up shares in 1962 — as a tool to make acquisitions and build a corporate portfolio of holdings.
To give you an idea about the extent of Berkshire’s reach today, consider the fact that the company announced the P&G Duracell deal this morning via BusinessWire — a financial news distribution company that Berkshire Hathaway owns. Put simply, they have people everywhere.
In late October, Procter & Gamble announced that it would be splitting off Duracell into a separate company and divesting from it, as the company continues to take steps to slim down and focus on doing a few things well. P&G’s press release gave more details about its rationale:
“P&G said its goals in the process of exiting this business are to maximize value to P&G’s shareholders and minimize earnings per share dilution.”
In the same press release, P&G touched on why someone like the value-oriented Berkshire Hathaway CEO Warren Buffett might find Duracell attractive as a buyer:
“Since we acquired the business in 2005 as part of Gillette, Duracell has strengthened its position as the global market leader in the battery category. … It’s a business with attractive operating profit margins and a history of strong cash generation. I’m confident the business and its employees will continue to thrive as its own company.”
Procter & Gamble should certainly be able to fulfill its goal of minimizing EPS dilution with this deal, as $4.7 billion in PG stock will come off the market and go back into the company’s coffers.
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As of this writing John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.