Warren Buffett's Berkshire Hathaway Inc said that it would buy Procter & Gamble Co's Duracell battery unit in a stock swap, taking over a business the billionaire has supported for nearly two decades.
The transaction calls for P&G to receive about $4.7 billion of its own shares that Berkshire now owns. P&G would infuse $1.8 billion in cash into Duracell before the expected closing in the second half of 2015.
Chief Executive Officer A.G. Lafley is streamlining the Cincinnati-based P&G by shedding slow-growing brands and focusing on about 80 businesses that generate most of its profit and revenue. Tide laundry detergent and Pampers diapers are among its better-known products.
The addition of Duracell, whose batteries are known for their copper-coloured tops, gives Buffett a familiar name to add to Berkshire's stable of more than 80 businesses, including Benjamin Moore paint, the Dairy Queen fast-food chain and Heinz ketchup.
Also, Buffett would avoid a big tax bill that his Omaha, Nebraska-based company might incur if it sold its P&G shares on the open market.
Berkshire has said it paid just $336 million for its 1.9 per cent stake in P&G, which totalled about 52.8 million shares as of June 30.
P&G stock dipped 0.2 per cent to $89.32.
The Duracell purchase is a "brilliant move" for Buffett, said Doug Kass, who runs Seabreeze Partners Management in Palm Beach, Florida. "Warren loves mature and durable consumer brands that produce predictable cash flow. Duracell fits the bill."
Berkshire has owned P&G stock since P&G bought Gillette Co in 2005. Buffett had invested in Gillette since 1989.
Buffett was about halfway through a 14-year stint on Gillette's board when that company agreed to buy Duracell for $7 billion in stock in 1996. That's more than twice what Berkshire is paying, after accounting for the cash infusion.
Buffett prefers owning businesses outright, especially those that are easy to understand and have strong competitive advantages - rather than the underlying stock.
"I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette," Buffett said in a statement.
Earlier this year, Buffett swapped shares of Phillips 66 for a unit that makes chemicals for pipelines, and stock in Graham Holdings Co, which once published the Washington Post, for a Miami TV station and other assets.
Berkshire ended September with $62.38 billion in cash, giving Buffett plenty of ammunition for another big purchase.
Buffett's assistant did not immediately respond to a request for further comment.
While Duracell controls more than one-fourth of the global market for batteries, demand for its non-rechargeable alkaline batteries has slackened amid growth in rechargeables.
P&G last month announced plans to shed Duracell as it streamlines, after agreeing to sell some pet food brands to Spectrum Brands Holdings Inc in the prior month.
"It is a good thing that P&G is moving swiftly to divest its non-core brands," Sanford Bernstein analyst Ali Dibadj said. "I don't take it as a good sign that Buffett would rather own Duracell than P&G."
Nonetheless, Tony Scherrer, director of research at Smead Capital Management said: "Buffett understands the power of Duracell and the cash flow it can bring."
P&G will take a non-cash charge of 28 cents per share in the current quarter to write down goodwill and intangible assets, and adjust fiscal 2014 results to reflect Duracell as a discontinued operation.
P&G also affirmed its fiscal 2015 forecasts in organic sales and core earnings per share growth.
Goldman Sachs, Jones Day, and Cadwalader Wickersham & Taft advised P&G.
Berkshire's Class A shares were up $1,134 at $219,235, and touched a record high during the day.