In a deal that has analysts wondering, “Why is he doing it?”, Warren Buffett is swapping shares of Procter & Gamble to buy its Duracell brand battery division.

The deal values the business at roughly $3 billion and Buffett’s Berkshire Hathaway will turn over $4.7 billion of P&G shares in return.

After the deal, Duracell will be richer by $1.7 billion, while P &G would have achieved its goal of selling off slower-selling brands as a part of a plan to hive off over half its brands around the globe over the two years and hold only about 70 to 80 brands.

What is in it for Buffett? “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 last week. The long-term association with P&G started in 2005, when the company bought Gillette in a $57-billion deal, making Buffett one of P&G’s biggest shareholders.

Duracell will add to Berkshire’s portfolio of over 80 businesses that includes prominent consumer brands such as Geico insurance, Heinz and Fruit of the Loom.

There is also a tax angle. Doing an exchange may help the Omaha, Nebraska-based conglomerate cut its holding in P&G without incurring the capital gains tax cost of selling shares in the open market.

A similar strategy of swapping shares of the parent company to acquire one operating unit was followed in December 2013 — Phillips 66 was exchanged for its pipeline services unit.

However, analysts believe that buying Duracell will only provide a “short-term charge”, but could end-up being a “drain” on Berkshire.

This is because consumers are increasingly moving toward rechargeable batteries and Duracell is only a minor player in this segment.

Related Topics