The conglomerate run by the billionaire, Berkshire Hathaway, said on Thursday that it would acquire Duracell from P.&G. through an unusual transaction aimed at lowering the overall tax bill.
P.&G. will first recapitalize Duracell by injecting about $1.8 billion in cash into the subsidiary. Then Berkshire Hathaway will take over the battery business by exchanging its shares in P.&G., currently valued at about $4.7 billion.
The complicated maneuver will let P.&G. and Berkshire Hathaway avoid significant taxes. And it will allow P.&G., which also owns Crest toothpaste and Tide detergent, to part with Duracell more quickly than under its original plan, in which P.&G. would have let its shareholders exchange some of their holdings for shares in Duracell.
The stock swap is a structure that Mr. Buffett’s company has used on occasion to sell shares without paying a large amount of taxes. This year, for example, he traded his shares in Graham Holdings, owner of the Kaplan education company and the former parent of The Washington Post, in exchange for a Miami television station, some cash and shares in Berkshire Hathaway that Graham Holdings owned.
In this instance, Mr. Buffett is taking advantage of the maneuver to gain yet another prominent brand to add to Berkshire’s stable, a collection that already includes Fruit of the Loom underwear and See’s candy.
“I have always been impressed by Duracell, as a consumer and as a long-term investor in P.&G. and Gillette,” Mr. Buffett said in a statement. “Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway.”
Mr. Buffett will become the latest owner for Duracell, which has passed through several companies in its 50 years as a brand. Others that have controlled Duracell include the private equity firm Kohlberg Kravis Roberts and Gillette, which paid $7 billion for the business in 1996.
The transaction is part of an effort by P.&G. to slim down by shedding lower-growth brands, especially those that do not fit well in its core stable of products. It has sold at least 10 businesses this year, according to Standard & Poor’s Capital IQ, including the Iams pet food brand for $2.9 billion.
Thursday’s transaction is the biggest-ever divestiture by the company, surpassing its $3.7 billion sale of Folgers coffee to J.M. Smucker in 2008, according to Capital IQ.
P.&G. acquired Duracell when it bought the battery maker’s then-parent, Gillette, in a blockbuster $57 billion takeover. Duracell, maker of the familiar copper-top batteries, has performed well since then. Its market share was about 25 percent last year, but it was regarded by analysts as having little in common with P.&G.’s other brands.
Mr. Buffett became a big shareholder in P.&G. through the Gillette takeover, since Berkshire Hathaway owned a 9 percent in the razor maker. He also sat on Gillette’s board.
He has sold down that stake over time, but as of this summer remained the fifth-biggest shareholder in P.&G.
Goldman Sachs provided financial advice to P.&G. The law firm Cadwalader, Wickersham & Taft gave tax advice, while Jones Day delivered legal counsel.
Procter & Gamble Sets Duracell on New, Independent Course
In announcing a plan to split off Duracell, Procter & Gamble will give the battery maker something it hasn’t had in nearly two decades: life as an independent company.