Georgia businesses may have heard the phrase “cash is king,” but that may not always be the case. Cash is not the only consideration in mergers and acquisitions. This may be best illustrated by a deal recently negotiated between Procter & Gamble and Warren Buffett’s company Berkshire Hathaway.
Buffett’s company recently agreed to acquire Duracell, which is currently owned by P&G. Instead of using cash for the bulk of the transaction, Berkshire Hathaway will pay for the battery company with the shares of P&G stock it owns. The current value of the stock is somewhere in the neighborhood of $4.7 billion. Other than the stock, Berkshire Hathaway will inject cash in the approximate amount of $1.8 billion into Duracell prior to the latter half of next year, which is when the deal is set to close.
Structuring the deal in this manner limits the amount of tax that Berkshire Hathaway will pay in connection with the purchase. This gives the company more value for the stock. If the company had simply sold its shares, the taxes could have easily reached $1 billion. Not only is Buffett’s company getting a company with a product that has stood the test of time, but it is also getting a significant savings.
When Georgia businesses consider mergers and acquisitions, it may be beneficial to think outside the box — as Buffett did in the Duracell acquisition. Exploring all of the business and legal options could reveal a way for both companies involved to receive the maximum benefit from the method of payment. In this case, P&G gets its stock back and offloads a company that does not fit within its business model, and Buffett acquires a solid business with a significant tax savings.
Source: Reuters, “Buffett’s Berkshire Hathaway buys P&G’s Duracell“, Jonathan Stempel and Devika Krishna Kumar, Nov. 13, 2014