Duracell: A Durable Cell Battery “Trusted Everywhere” Moves In With Berkshire

“‘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 Hathaway Inc. News Release

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SEC filing: “Berkshire Hathaway to Acquire Duracell in Exchange for P&G Shares”

“‘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.”

Source: SEC Edgar System, 2014 P&G ANALYST MEETING PRESS RELEASE

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Company History

  • 1935: P.R. Mallory founds Duracell’s predecessor company.
  • 1944: Inventor Samuel Ruben joins forces with Mallory, kicks off battery business.
  • 1966: Earnings per share hit $2.34 before falling off with recession related drop in consumer spending.
  • 1972: Sales of electrical and electronic items to industry are boosted.
  • 1978: P.R. Mallory is acquired by Dart Industries.
  • 1980: Dart merges with Kraft Inc.
  • 1986: Kraft retains Duracell portion of business after split with Dart.
  • 1988: Kohlberg Kravis Roberts takes over Duracell during leveraged buyout spree.
  • 1989: Duracell goes public.
  • 1996: The Gillette Company acquires Duracell.
  • 2005: Procter & Gamble is set to buy Gillette.
  • 2014: Berkshire Hathaway acquires Duracell from Procter & Gamble.

Sources: Referenceforbusiness.com; Wikipedia.com

The Procter & Gamble Company 2014 Analyst Meeting

Source: P&G Investor Relations

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Duracell Inc, 1996 10-K

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Source: SEC EDGAR

What Does Buffett See in Batteries?

Morningstar’s view on today’s Berkshire deal:

“We’re not sure what to make of wide-moat Berkshire Hathaway’s $4.7 billion purchase of the Duracell battery business from Procter & Gamble, another wide-moat firm. While one would have expected to see Warren Buffett use some of the more than $40 billion in excess cash on Berkshire’s books at the end of the third quarter to finance a deal of this size, the transaction has actually been structured as a tax-exempt transfers of assets, with P&G accepting Berkshire’s 52.8 million share equity stake in the consumer products firm (worth $4.7 billion at yesterday’s market close) for Duracell. That said, it remains to be seen whether P&G’s $1.8 billion pre-transaction recapitalization of the battery business will be viewed as a taxable event for Berkshire. We are leaving our fair value estimate in place.”

Source: See link to Morningstar analyst report below. 

Further Reading

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.

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