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Berkshire Hathaway to Acquire the Duracell Battery Business from Procter & Gambl


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The exchange may help Berkshire cut its holding in Cincinnati-based P&G without incurring the tax costs of selling shares in the open market. Buffett became one of P&G’s biggest shareholders through an investment in Gillette Co. P&G bought the razor maker in 2005 in a $57 billion deal that the Berkshire chairman supported. Berkshire held more than 100 million shares as recently as 2008 and cut the stake several times since then as the consumer-goods company faltered under previous Chief Executive Officer Bob McDonald.

 

“I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette,” Buffett said in the statement.

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The exchange may help Berkshire cut its holding in Cincinnati-based P&G without incurring the tax costs of selling shares in the open market. Buffett became one of P&G’s biggest shareholders through an investment in Gillette Co. P&G bought the razor maker in 2005 in a $57 billion deal that the Berkshire chairman supported. Berkshire held more than 100 million shares as recently as 2008 and cut the stake several times since then as the consumer-goods company faltered under previous Chief Executive Officer Bob McDonald.

 

“I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette,” Buffett said in the statement.

 

Maybe im totally wrong but I somehow seem to remember that Buffett did not like the fact that Gillette bought Duracell. He felt it was a commodity business.

 

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The exchange may help Berkshire cut its holding in Cincinnati-based P&G without incurring the tax costs of selling shares in the open market. Buffett became one of P&G’s biggest shareholders through an investment in Gillette Co. P&G bought the razor maker in 2005 in a $57 billion deal that the Berkshire chairman supported. Berkshire held more than 100 million shares as recently as 2008 and cut the stake several times since then as the consumer-goods company faltered under previous Chief Executive Officer Bob McDonald.

 

“I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette,” Buffett said in the statement.

 

Maybe im totally wrong but I somehow seem to remember that Buffett did not like the fact that Gillette bought Duracell. He felt it was a commodity business.

 

He is getting a good deal to compensate.

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Someone made a good point in the video. Buffett continues to increase the weighting of owned assets vs. stock holdings. Three things follow -

 

1) They will be better run under the Berkshire umbrella, as institutional imperatives are dropped;

 

2) As BRK gets its hands on the cash flow, it will deploy it better than P & G would;

 

3) As more of BRK's earnings are reported, it helps valuation. Buffett doesn't care about that, but I do.......15 years ago, unreported earnings from the likes of KO were roughly equal to reported earnings from the operating companies. Now they are ~a fifth. It sounds stupid, but BRK was constantly said to be priced at 25X earnings when it was really 13X look-through earnings. That's getting fixed.

 

That's how I see it....

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So he gets to swap his PG shares for Duracell.

 

No capital gains tax due on the PG shares.

 

I have an idea...

 

Could Bank of America purchase some Berkshire Hathaway shares and then swap them with me for my appreciated BAC shares?  That way I could get out of my BAC shares without a capital gains event.

 

That would be an awesome way to have a shareholder friendly buyback program.  You just notify the company that you want to tender your shares, and specify which shares they should purchase and deliver to your account in exchange.

 

 

 

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So he gets to swap his PG shares for Duracell.

 

No capital gains tax due on the PG shares.

 

I have an idea...

 

Could Bank of America purchase some Berkshire Hathaway shares and then swap them with me for my appreciated BAC shares?  That way I could get out of my BAC shares without a capital gains event.

 

That would be an awesome way to have a shareholder friendly buyback program.  You just notify the company that you want to tender your shares, and specify which shares they should purchase and deliver to your account in exchange.

 

I think you need to include an OpCo to get it to be nontaxable. Maybe they can throw one ATM into the mix?

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So he gets to swap his PG shares for Duracell.

 

No capital gains tax due on the PG shares.

 

I have an idea...

 

Could Bank of America purchase some Berkshire Hathaway shares and then swap them with me for my appreciated BAC shares?  That way I could get out of my BAC shares without a capital gains event.

 

That would be an awesome way to have a shareholder friendly buyback program.  You just notify the company that you want to tender your shares, and specify which shares they should purchase and deliver to your account in exchange.

 

If you ask nicely, they will also throw in a billion or two.

;D

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How long until the announcement that Berkshire has hired 3G to comb over Duracell?

 

I'll bet that this won't happen. Not Buffett's style, I think.

 

When the deal with 3G for Heinz happened, someone asked Buffett -- or perhaps Munger -- if this signified a change in how Berkshire treats its acquisitions. The answer was a very clear "No". My take is that if it's a deal initiated by 3G, then Buffett will let them manage operations as they see fit, but acquisitions done by Berkshire will be no different than before.

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Does anyone know the actual tax rate that Berkshire would have had to pay on the PG shares if they instead just sold them outright? I'm curious what the"avoided" tax bill of this swap was, and I simply don't know if corporations that sell appreciated stock have different tax rates than individuals. THanks in advance

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He would owe 34% on $4.364 Billion - which comes to $1.48 Billion in tax (which is also the value of the deferred tax liability that would "vanish" from BRK's books)

 

Does anyone know the actual tax rate that Berkshire would have had to pay on the PG shares if they instead just sold them outright? I'm curious what the"avoided" tax bill of this swap was, and I simply don't know if corporations that sell appreciated stock have different tax rates than individuals. THanks in advance

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So if he sold he'd have $3.2B of cash.

 

Instead he has $1.7B of cash + $414MM of EBITDA and ~$270MM estimated FCF from Duracell. So that $1.5B of cash foregone by not doing a straight equity sale is yielding quite a lot. <---ya i know that was a bit bass ackwards of a way to put it.

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He would owe 34% on $4.364 Billion - which comes to $1.48 Billion in tax (which is also the value of the deferred tax liability that would "vanish" from BRK's books)

 

Even if it's long term gains ?

 

Corporations don't get a different treatment of "short" vs "long" term gains.

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BYD, Duracell, MidAmerican, Exxon...any convergence?

 

http://theenergycollective.com/jessejenkins/236951/got-solar-panel-then-wire-dc-circuit

 

The paradigm shift away from AC towards DC generation/transmission/storage. The world is moving in this direction anyway.

 

OK, enough of the excitement, time to return to boring BRK.

 

 

So say over the next few decades the whole global energy infrastructure shifts quite rapidly and massively until everyone has their own big storage batteries at home and in their cars, how much new demand (as you're pointing out) will there be for batteries?

 

If you think that solar energy and battery storage will be cheaper than rival energy infrastructures for first-time users in Africa, India and other places, then what is the opportunity for good businesses with battery expertise?

I mean, that's already a few billion currently (pun not intended) unserved customers right there...

 

With a brand like Duracell and a demand curve shaped like that, it wouldn't surprise me to find in 10 or 20 years that P&G had basically given this business away.

 

I'll just add this UBS report to your post, since it reiterates how big the global battery market is likely to become in the not too distant future.

 

Global Utilities, Autos & Chemicals: Will Solar, Batteries and Electric Cars re-shape the Electricity System?

 

http://knowledge.neri.org.nz/assets/uploads/files/270ac-d1V0tO4LmKMZuB3.pdf

 

 

 

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