Stock Spinoffs

Buffett Swoops In, Taking Procter & Gamble’s Duracell Spinoff Off The Table

Late last month, Procter & Gamble(PG) announced that it would be divesting its Duracell business.  At the time, its preferred outcome was to spin off the division to shareholders.

The second step is the exit of the Duracell business. Although no decision has been made on the form of the exit, P&G’s current preference is a split-off of the Duracell business into a stand-alone company.

In a split-off, P&G shareholders would be given the option of exchanging some, none, or all of their P&G shares for shares in the newly formed Duracell company. P&G’s outstanding share count would be reduced by the number of P&G shares exchanged. The exact exchange ratio would be set just prior to the completion of the transaction, which P&G expects would occur in the second half of calendar year 2015.

P&G said it would notify its shareholders when a final decision is made regarding the form of the business separation. The Company added that any alternative exit scenario – including a spin-off, divestiture or other offer – that generates equal or better value will be considered.

This would have made it one of two battery spinoffs, with Energizer Holdings(ENR) planning to separate its battery business from its personal care business.

Today, the company announced a change of plans. Moving quickly, it would seem, longtime P&G shareholder Berkshire Hathaway(BRKB) will be exchanging its $4.7 Billion stake in P&G for Duracell plus $1.7 Billion in cash.

“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.”

P&G explained that the tax efficient nature of the deal makes the valuation more attractive.

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.

 

The transaction is expected to close in the second half of 2015.

Berkshire has been a long time shareholder of P&G, having owned Gillette when P&G acquired it nearly two decades ago.

Disclosure: The author owns shares of BRKB

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