In a now signature business move, Warren Buffett’s Berkshire Hathaway has bought the battery company, Duracell, from Proctor&Gamble. Through an intricate process of exchanging stocks, Buffett will manage to avoid millions of dollars in taxes on the deal. The latest billion dollar maneuvering shows his continued economic savvy, as the IRS tax code specifically allows for these “cash-rich split-off” deals. In his words, “price is what you pay. Value is what you get.”
Demonstrating his confidence, Warren has said in the past, “I always knew I was going to be rich.” The 84-year old is the second-richest person in the country, with only Microsoft’s founder Bill Gates ahead of him. Buffett has a net worth of $66.8 billion. Commenting on the Duracell brand deal, he said he was “impressed” and that it would “fit well within Berkshire Hathaway.”
Duracell is the world’s largest producer of alkaline batteries, holding 25 percent of the global market share. It creates the typical AA, C and 9-volt batters that power children’s toys and electronics. The company also manufacturers batteries for cell phones, hearing aids and other medical devices. Innovation in the company has continued despite slow growth with the PowerMat to wirelessly charge iPhone batteries.
To solidify the new business deal, Buffett traded his 52 million shares in P&G which were worth $336 million when he bought them. Those shares are now worth $4.7 billion. If the transaction had been a typical trade, both parties would have seen a 38 percent tax rate or more. By trading stocks and shares, Buffett and P&G managed to avoid a million-dollar tax bill. He has used this stock trading tactic before, when he traded shares in Graham Holdings, the former owner of the Washington Post and Kaplan education company, for a return of shares in Berkshire Hathaway.
Avoiding paying taxes seems to contrast Buffett’s with recent statements that wealthier individuals should be taxed more. As one of the staunchest advocates for tax reform, he has had a bill in Congress named after him. The Buffett Rule, if passed, would ask the wealthiest Americans to carry more of the tax burden. Trading stocks to pay less taxes is something the billionaire stands by. He says, “I will not pay a dime more… of taxes… than I owe.”
Purchasing Duracell falls in line with Buffett’s other acquired brands. He typically prefers brands that already have a stable share of their market and a reliable cash flow. With 80 diverse brands in Berkshire’s portfolio, some of Buffett’s other businesses include Dairy Queen, Fruit of the Loom, Gillette and Geico. Buffett joked that he decides which new stocks to buy based on “businesses that are so wonderful an idiot can run them.”
P&G will continue to shrink its sizable portfolio in an effort to halve their 200 different brand holdings. So far this year, it has sold 10 of its businesses. Buffett remarked that it is smarter to “buy a wonderful company at a fair price” than a “fair company at a wonderful price” with the new business buy falling in the former category. In the announcement of the decision to sell, A.G. Lafley, P&G CEO, said they are “confident the business and its employees will continue to thrive.”
By Didi Anofienem