Warren Buffett's Berkshire Hathaway Inc said it would buy Procter & Gamble Co's Duracellbattery business in exchange for its entire $4.7 billion stake in the world's No. 1 household products maker.
P&G, whose brands include Pampers diapers and Tide detergent, said it would contribute about $1.8 billion in cash to recapitalize Duracell before the transaction.
"Following its prior announcement of plans to exit the Duracell business, P&G said it now plans to execute a split transaction, in which it will exchange a recapitalized Duracell Company for Berkshire Hathaway’s shares of P&G stock, Procter & Gamble said in a statement released Thursday.
“We thank the Duracell employees for their many contributions to the business. They’ve made Duracell the global market leader in the battery category,” P&G board chairman and CEO A.G. Lafley said in the news release. “I’m confident this new ownership structure will provide strong support for Duracell’s future growth plans.”
“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, said in a statement, “Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway.”
Shares of P&G, which also reiterated its full-year organic sales and core earnings growth forecasts, fell about 1 percent before the bell.
The household products maker said in August it could sell about half of its slow-growing brands and last month said it would sell Duracell to focus on faster-growing brands.
Demand for Duracell's mainstay non-rechargeable, disposable alkaline batteries has waned while a worldwide explosion in electronic devices has increased demand for re-chargeable batteries.
Berkshire owned about 52.8 million shares in P&G as of June 30, or a stake of about 1.9 percent, according to the most recent regulatory filing. (http://1.usa.gov/1lZ2Ca3)
P&G and Duracell outlined the details of the purchase in a Thursday release:
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.
P&G said it would take a non-cash charge of about 28 cents per share in the current-quarter and said it expects to close the deal in the second half of next year.
Goldman Sachs & Co is P&G's financial adviser and Jones Day acted is its legal adviser.