The Procter & Gamble Company (PG) recently announced plans to divest its Duracell batteries business to Warren Buffet’s company Berkshire Hathaway, Inc. (BRK.B) in exchange for Berkshire’s equity stake in P&G.
Berkshire currently owns approximately $4.7 billion stake in P&G. At the close of the deal, P&G expects to capitalize Duracell with $1.8 billion in cash which would value the battery maker at about $3 billion.
P&G stated that the transaction maximizes the after-tax value of the Duracell business and is tax efficient for P&G. The deal values Duracell at approximately seven times its fiscal 2014 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). If it was an all-cash deal, translating to nine times EBITDA.
The deal is expected to close in the second half of 2015. P&G will report the batteries business as “discontinued” in its Oct-Dec 2014 quarterly results.
In a bid to fully exit the batteries business, P&G sold its interest in a Chinese battery joint venture earlier this week.
The divesture is in line with P&G’s announcement last month. Along with first-quarter fiscal 2015 results, P&G announced plans to exit the battery business in two steps — selling interest in the China-based battery joint venture and spinning off the Duracell business. P&G also stated then that it preferred to spin off Duracell into a separate company.
P&G acquired the Duracell business in 2005 as part of the Gillette acquisition. Duracell’s results have been lackluster for the past few quarters. In the first quarter, it recorded lower volumes.
P&G has aggressive plans to divest around 100 underperforming brands to concentrate better on fewer core strategic brands.
Fiscal 2015 Guidance Reiterated
P&G also reiterated the guidance for organic sales and core earnings per share.
Net revenue growth is expected to be flat to up in a low single-digit range, comparing unfavorably with prior expectation of low single-digit range. Currency is still expected to hurt revenues by 2%. Organic sales are still expected to grow in the low-to-mid single-digit range.
The company continues to expect core earnings per share to grow in a mid-single digit range in fiscal 2015. However, due to currency volatility, management expects to come in at the lower end of the range.
Other Stocks to Consider
P&G carries a Zacks Rank #3 (Hold). Better-ranked consumer staples stocks include The Clorox Company (CLX), WD-40 Company (WDFC) and Altria Group Inc. (MO). All the three stocks carry a Zacks Rank #2 (Buy).
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