Is Buffet stealing Duracell from P&G (NYSE:PG)
The firm Proctor and Gamble (NYSE:PG) said that it was getting out of battery power business when it reported its third quarter results in late October by selling its share of Chinese joint venture by spinning off its Duracell business. Today on Thursday it executed a start the process of exchanging a recapitalized Duracell business for shares of P&G (NYSE:PG)’s stock now held by Berkshire Hathaway. At the end of August the outstanding stocks of Berkshire Hathaway (NYSE:BRK.A) were about 1.95% and the shares were valued in Thursday’s announcement at about $4.7Billion.
However Warren Buffet’s aggregation of firms will get some help from P&G (NYSE:PG) that could contribute and estimated amount of $1.8Billion in cash to recapitalize Duracell. Earlier this week P&G (NYSE:PG) has also made its share of sales with the Chinese joint venture. While Warren Buffet’s remarks about his latest acquisition were that, as a consumer and a long term investor in P&G (NYSE:PG) and Gillete, Duracell has always impressed him and has left and impression.
He says that it will fit just well within Berkshire Hathaway (NYSE:BRK.A) because of its top quality products and being a leading global brand. It has been observed that P&G (NYSE:PG) actively seeks 90 to 100 of its brands so that it can focus more on its core profit producing brands according to a review Buffet’s top 10 holdings. While Duracell made $2.2Billion sales to lead the battery market with less than 10% sales P&G (NYSE:PG)’s fabric care and home care division.
The net earnings of the division summed up to be over $3Billion in 2013 and included brands like Dawn, Downy, Tide and Febreze. However the sales value of P&G (NYSE:PG)’s only business which increased in its annual reports was its batteries business which continues to exceed its underlying carrying value although the cusion had been cut by about 5%. Duracell has battery goodwill of worth $2.6Billion, intangible assets of $2.4Million since June 2014.
Since then the company has been taking a tax impairement charge of $932Millions for adjusting the carrying value and indefinite lived intangible assets of Duracell. According to some experts it’s not a satisfactory deal for P&G (NYSE:PG) to sell given the still high valuations of its goodwill and intangible assets. The experts think P&G (NYSE:PG) is making a blunder by signing this deal. Thought Buffet is paying a pretty good some of money of $2.9Billion for Duracell it was probably the best P&G (NYSE:PG) could realistically hope for.
However the investor’s reaction is yet to come particularly William who was instrumental in putting P&G (NYSE:PG)’s current CEO back in the corner office. To adjust its goodwill and intangible valuation of assets in its second fiscal quarter the Dura cell is reported to take a non-cash charge of about $0.28 per share to the expected after tax transactional value. It could close in the second half of 2015. Moreover the shares of P&G (NYSE:PG) ranged from $75.25 to $89.60 and stock of Berkshire Hathaway (NYSE:BRK.A) ranged from $163,038 to $281,544.