Category Archives: Duracell

Duracell Deal Finally Scheduled to Close in February

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2016 is starting off with some heavyweight acquisitions for Berkshire Hathaway.

Berkshire’s acquisition of aerospace manufacturer Precision Castparts closed on January 29, and February should be when Berkshire finally swaps it shares of Procter & Gamble’s stock for the company’s Duracell division.

With Duracell’s $2 billion in annual revenue, Berkshire is acquiring the market leader in batteries for the home and workplace. The company has highly recognizable brands that consumers in home and work settings are willing to pay more for than private label store brands.

According to the company, Duracell’s CopperTop® and Quantum® batteries command the highest average percent of spending among battery brands, with 33% and 16%, respectively.

Combined, the two product lines now account for close to 50% of the market.

Duracell’s growth has come at the expense of competitors Energizer and Rayovac.

Energizer has seen its market share shrink from 40% in 2012 to 36% in 2014, and Rayovac, which is a much smaller player, has seen its market share drop from 8% in 2012 to just 5% in 2014.

The total alkaline battery market in the U.S. alone is roughly $2.2 billion a year, with Duracell just over $858 million in alkaline batteries sales a year, or roughly 43% of the market.

Of the away-from-home market, healthcare/medical uses $70 million worth of batteries annually, followed closely by manufacturing, which consumes approximately $61 million worth of batteries annually.

A Mountain of Tax Savings for Berkshire

Berkshire’s not only acquiring the market leader for batteries, it’s also receiving a Mount Everest-sized bundle of tax-free cash.

By acquiring Duracell, Berkshire is able to cash out its $4.7 billion stake in Procter & Gamble that came from an original investment in Gillette of only $600 million.

In cashing out its position, Berkshire not only gets control of Duracell, but Duracell has been recapitalized by P&G with $1.7 billion in cash. This allows Berkshire a transfer of cash that is three times its original investment in Gillette, and the entire $4.7 billion transaction incurs no capital gains taxes.

For Berkshire, the Duracell deal shines brightly indeed.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: A Christmas Wish List for Under Warren Buffett’s Tree

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Here’s a Christmas wish list for presents under Warren Buffett’s tree. The items are big, so we’ll fit them under Charlie Munger’s tree as well.

1. Precision Castparts: There’s nothing like getting the present you bought for yourself. The pending acquisition the aerospace manufacturer looks like the gift that will keep on giving.  Demand for new airplanes will double over the next 15 years, as aging fleets are retired and millions more people start to fly regularly in India and China.

2. Duracell: Because everyone likes to get cash for Christmas! With the Duracell acquisition set to close in February 2016, Berkshire will gain not only the leading alkaline battery manufacturer, but will also get a company recapitalized by P&G with $1.7 billion in cash, and will get huge tax savings as it trades in its appreciated P&G stock for the battery maker.

3. More German Companies: Warren Buffett’s admiration for the German economy was on full display at the Berkshire Hathaway annual meeting in May 2015. This past February, Berkshire Hathaway struck a deal to acquire Devlet Louis Motorradvertriebs, a mail-order and retail chain selling motorbike clothing and accessories. The move, according to Buffett, was just the first small acquisition in a country with a strong economy and work ethic. And, with a rising dollar and a shaky euro, will more German companies fit under Berkshire’s tree?

4. Lots of Natural Gas: As the world dumps coal and moves to cheaper and cleaner forms of energy, Berkshire’s on the verge of striking it rich in Australia’s gas fields. Natural gas prices may be cratering now, but it never hurts to have a majority share of four trillion cubic feet of gas-in-place (yes, trillion) in Australia’s Whicher Range and Wonnerup gas fields. A new test well hopefully will bring good news in the new year.

5. More Auto Dealers: When Berkshire Hathaway jumped into the auto retailing business in March 2015, with its acquisition of the Van Tuyl Group, it added a whole new line of business to the mega-conglomerate. The Van Tuyl Group was the largest privately owned auto dealership group in the U.S., and Buffett promised that this was just the start of building a major auto-retailing empire. So, will Herb Chambers Companies, a privately-held, Boston-based dealership group with 55 total dealerships, be the perfect fit for Berkshire Hathaway Automotive? Its owner looks ready to sell. Time to wrap this one up and put a bow on it.

6. Happy Pilots at NetJets: Forget your crazy uncle, there’s nothing like having a happy family at Christmas. This holiday, NetJets’ pilots and its flight attendants will be celebrating their new contracts that bring substantial raises. Hopefully, they’ll use it to buy some of Berkshire’s fine products. How about some jewelry from Borsheims? It’s been a good year. Go for it!

7. More Solar & Wind! Berkshire’s quickly becoming the leading energy producer and distributor of solar and wind energy. This year saw major wind farm projects, including a new wind farm site in Adams County, Iowa, which will produce 162 megawatts of additional wind generation capacity in Iowa. Berkshire’s aggressive expansion of it solar power farms saw its Topaz Solar Farm in San Luis Obispo County, California, become one of the largest photovoltaic solar farms in the world. And, there’s plenty of room under the tree for more such projects, which not only bring cheap energy, but also lower environmental costs as they are emissions free. With the cost of solar energy dropping fast, Berkshire’s been signing amazing deals that are a Christmas present now and for decades to come. In Nevada, it has contracted to buy electricity from First Solar’s soon to be built Playa Solar 2 at the astoundingly low rate of only 3.87 cents a kilowatt-hour, and the deal is a fixed rate contract for twenty years.

8. More Deals with 3G Capital: Because everyone likes surprises. 3G’s aggressive acquisition strategy has been the perfect partner for Berkshire’s cash. 3G brings not only the aggressive cost-cutting (aggressive is an understatement) that is bringing legacy companies such as Kraft-Heinz into the 21st century, but also gives excellent financing and equity opportunities. 3G’s merger of Burger King with Tim Hortons brought Berkshire fat interest payments and made Berkshire a minority owner of the newly formed Restaurant Brands International. Surely, there are more deals to be done.

Hard to fit this all under the Christmas tree? Berkshire’s a big company. There’s room for all this and more.

Merry Christmas everybody!

–David Mazor

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Star Wars Ad Campaign Powers Up Duracell Before Shift to Berkshire Hathaway

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The force seems to be with Berkshire Hathaway as a major movie tie-in is likely to power up interest in Duracell batteries just as Berkshire takes over the world-leader in alkaline batteries from its previous owner, Procter & Gamble.

Berkshire agreed to acquire Duracell in November 2014 in a tax-free swap of stock and cash that traded Berkshire’s $4.7 billion stake in Procter & Gamble for the Duracell. The battery manufacturer will also be recapitalized by P&G with $1.7 billion in cash.

According to a Duracell official, the deal looks set to conclude in February 2016.

Just two months before the deal finalizes, Duracell has launched its Star Wars “Battle for Christmas Morning” movie tie-in with a big budget TV campaign that was shot on an all-new anamorphic camera lens and aspect ratio that were only used previously on the new Star Wars film.

A Movie Quality TV Spot

The TV spot debuted December 7th and is scheduled to run through December 31st.

Shot by directed by Star Wars fan and director of the Night at the Museum film series, Shawn Levy, the spot features a 14-year old boy and his 9-year old sister entering a limitless world of creativity once Duracell Quantum batteries are inserted into their new lightsaber toys.

The 60-second spot, which features appearances by original Star Wars characters, C-3PO and R2-D2, highlights the power and importance of imagination for the whole family.

“This ad is a whole story within a finite number of seconds; a boy gets a lightsaber on Christmas morning, he pops in his Duracell batteries to power up his toy and suddenly, within the real world, is this injection of make believe and imagination,” said Shawn Levy, director. “It’s really about the transformation from the real into the fantastical and how these little batteries provide the juice for this whole imagined universe and adventure.”

As a promotional partner of Star Wars: The Force Awakens, Duracell collaborated with many of the forces behind Star Wars, including Disney, Lucasfilm, Industrial Light & Magic (ILM) and Skywalker Sound to create an authentic Star Wars experience and bring this action story to life.

The TV spot received expert guidance from famed cinematographer, Daniel Mindel, who was the director of photography on the new Star Wars film, as well as the director of photography on the 2009 film Star Trek and the 2013 film Star Trek Into Darkness.

A Galaxy of Movie Tie-Ins

Star Wars movie tie-ins are ubiquitous as the highly anticipated film has been on manufacturers and retailers minds for the past few years. Disney, which purchased Lucasfilm in 2012, has tied the film to everything from a Darth Vader-black Dodge Viper from Fiat Chrysler to CoverGirl makeup; however, none would seem to be a better fit than Duracell as the power source for galaxy of Star Wars toys and games.

The movie industry is anticipating that Star Wars: The Force Awakens will smash opening day and opening week box office records around the globe when it hits movie theater screens on December 18. The jumbo box office numbers are guaranteed as there are already over $50 million in presold tickets for opening weekend. The big question is will it enjoy a run at the biggest movie of all-time, a record that currently belongs to Avatar, which hit theaters in 2009 and took in $2.788 billion in theaters world-wide

For Berkshire, hopefully it will launch a great sales year as all the Star Wars toys need a constant supply of batteries. While Berkshire likes to own companies for the long term, it never hurts to start a marriage with an interstellar honeymoon.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Duracell Makes Push to Expand Asia Sales

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Battery-maker Duracell is making a push to expand its market penetration across Asia.

Duracell is the world-wide leader in alkaline batteries and will become a wholly-owned subsidiary of Berkshire Hathaway in early 2016.

Duracell has hired DKSH to help with the effort. Based in Zurich, Switzerland, the company is a Market Expansion Services Group that focuses on Asia.

DKSH’s goal is to drive growth of Duracell across retail and online channels in mainland China and Taiwan, and in Southeast Asia including Thailand and Singapore. DKSH’s services include field marketing, sales, distribution, logistics, and credit and collection services.

For Duracell, DKSH, through its joint venture DKSH Smollan Field Marketing, will provide a range of shopper engagement and activation services in Singapore, Taiwan and Thailand.

DKSH Smollan Field Marketing (DSFM) is jointly owned by DKSH and the Smollan Group of South Africa – a leading provider of Point of Purchase Services.

DKSH’s services include sourcing, research and analysis, marketing, sales, distribution and logistics to after-sales services. The company operates in 35 countries and has 720 locations in in Asia Pacific, and 30 in Europe and the Americas.

For more info on Duracell read this Special Report.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Wins EU Approval for Duracell Acquisition

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Berkshire Hathaway has gained approval from the European Commission for its acquisition of battery-maker Duracell from Procter & Gamble.

In a statement released by the Commission:

“The Commission concluded that the proposed acquisition would not raise competition concerns given the absence of horizontal overlaps and the existence of numerous competitors in the vertically related market where the parties are active. The transaction was examined under the normal merger review procedure.”

About Duracell

With Duracell’s $2 billion in annual revenue, Berkshire is acquiring the market leader in batteries for the home and workplace. The company has highly recognizable brands that consumers in home and work settings are willing to pay more for than private label store brands. According to the company, Duracell’s CopperTop® and Quantum® command the highest average percent of spend among battery brands with 33% and 16%, respectively.

Combined, the two product lines account for close to 50% of the market.

For a look at what type of company Berkshire is getting read this special report.

©2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Special Report: What is Berkshire Getting With Duracell?

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On July 29, 2015, leading battery maker Duracell, which has been a unit of Procter & Gamble, will become wholly owned by Berkshire Hathaway.

The deal will bring Berkshire both a top consumer brand and a mountain of tax-free cash.

While Berkshire had announced that Duracell would become part of its Marmon Group of companies, a Marmon spokesman assured me that it will be an independent company that will report directly to Berkshire management.

What Kind of Company is Duracell?

Berkshire is acquiring the market leader in batteries for the home and workplace. In fact, despite P&G having planned to sell-off the unit, Duracell’s market share has grown from 48% in 2012 to 56% in 2014.

The company has highly recognizable brands that consumers in home and work settings are willing to pay more for than private label store brands. According to the company, Duracell’s CopperTop® and Quantum® command the highest average percent of spend among battery brands with 33% and 16%, respectively.

Combined, the two product lines account for close to 50% of the market.

Duracell’s growth has come at the expense of competitors Energizer and Rayovac.

Energizer has seen its market share shrink from 40% in 2012 to 36% in 2014, and Rayovac, which is a much smaller player, has seen its market share drop from 8% in 2012 to just 5% in 2014.

The total alkaline battery market in the U.S. alone is roughly $2.2 billion a year, with Duracell just over $858 million in alkaline batteries sales a year, or roughly 43% of the market.

Of the away-from-home market, healthcare/medical uses $70 million worth of batteries annually, followed closely by manufacturing, which consumes approximately $61 million worth of batteries annually.

A Changing Market

Offices and other workplaces use batteries more than ever. For decades, flashlights where the primary drivers of battery usage in away-from-home settings, but that has changed greatly in just the past few years. According to a report by Kline & Company, wireless devices, including computer mice and keyboards, topped the list in 2014 in the demand for batteries. Wireless mice were the number one use for batteries followed by clocks and remote controls. The traditional flashlight has fallen to number seven, just above smoke alarms.

A Growing Market

At the time of the announcement of Berkshire’s acquisition of Duracell, many analysts downplayed the battery market’s potential for growth. I believe that view is short-sighted, as the away-from-home battery market has not only grown 2% from 2012 to 2014, but Duracell’s share of that market has continued to grow. Batteries are more relevant than ever with the number of wireless devices proliferating.

A Proven Name, A Trusted Brand

Warren Buffett loves quality brands, be they Coca-Cola, Heinz, or Kraft. He knows that consumer brand loyalty is essential for retaining market share in commodity businesses. In Duracell, Berkshire’s getting the most trusted name in batteries.

The 2015 BrandSpark Most Trusted Awards winners for Consumer Packaged Goods brands, which were voted by more than 80,000 American consumers, chose Duracell as the most trusted battery brand.

But Wait, There’s More!

Berkshire’s not only acquiring the market leader for batteries, it’s also receiving a Mount Everest-sized bundle of tax-free cash.

Berkshire’s $4.7 billion stake in Procter & Gamble came from an original investment in Gillette of only $600 million. In cashing out its position, Berkshire not only gets control of Duracell, but Duracell has been recapitalized by P&G with $1.7 billion in cash. This allows Berkshire a transfer of cash that is three times its original investment in Gillette, and the entire $4.7 billion transaction incurs no capital gains taxes.

For Berkshire, Duracell shines brightly indeed.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.