(Reuters) - Berkshire Hathaway Inc has agreed to acquire Procter & Gamble Co's Duracell battery unit in a complex transaction that lets Berkshire Chairman Warren Buffett buy a business he has supported for two decades and shave his company's tax bill.
Rather than pay cash, Berkshire (BRKa.N) will give P&G $4.7 billion of the shares it now owns in the world's largest consumer products company. P&G (PG.N) will infuse $1.8 billion in cash into Duracell before the expected closing in the second half of 2015.
The transaction announced on Thursday helps P&G Chief Executive A.G. Lafley streamline his Cincinnati-based company by shedding slow-growing brands and focus on about 80 brands that generate most of its profit and revenue. P&G's better-known products include Tide laundry detergent and Pampers diapers.
Buffett, meanwhile, avoids a big tax bill that Omaha, Nebraska-based Berkshire might have incurred if it sold its P&G shares. Both P&G and Berkshire shares hit a record high this week.
Buying Duracell is a "brilliant move," said Doug Kass, who runs Seabreeze Partners Management in Palm Beach, Florida, and is a longtime Berkshire critic who is selling its shares short.
"Warren loves mature and durable consumer brands that produce predictable cash flow. Duracell fits the bill," Kass added. "And accomplishing this in a tax-efficient transaction."
Berkshire has said it paid just $336 million for its 1.9 percent stake in P&G, equal to 52.8 million shares on June 30.
Assuming a 35 percent tax rate on corporate capital gains, the swap could save Berkshire more than $1 billion, on top of tax savings from two similar transactions earlier this year.
Berkshire's income tax bill was $8.95 billion in 2013, or 31 percent of pretax earnings.
Duracell, whose batteries are known for their copper-colored tops, gives Buffett a familiar name to add to Berkshire's stable of more than 80 businesses, including Benjamin Moore paint, the Dairy Queen ice cream chain and Heinz ketchup.
"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. [ID:nBw5J6R8za]
Some analysts questioned why Berkshire views Duracell as a good fit, while P&G does not.
While Duracell has more than one-fourth of the global market for batteries, demand has slackened amid the growth in smartphones and other devices that rely on rechargeable power sources.
"It is a good thing that P&G is moving swiftly to divest its non-core brands," Sanford Bernstein analyst Ali Dibadj said. "I don't take it as a good sign that Buffett would rather own Duracell than P&G."
Buffett's assistant did not immediately respond to a request for further comment.
In afternoon trading, Berkshire's Class A shares were up 0.4 percent at $218,912, while P&G fell 0.7 percent to $88.87.
Berkshire has owned P&G stock since P&G bought Gillette Co in 2005. Buffett had invested in Gillette since 1989.
Buffett was about halfway through a 14-year stint on Gillette's board when that company agreed to buy Duracell for $7 billion in stock in 1996. That's more than twice what Berkshire is paying, after accounting for the cash infusion.
Buffett prefers owning businesses, especially if they are easy to understand and have strong competitive advantages, to the underlying stock.
Earlier this year, Buffett swapped stock of Phillips 66 (PSX.N) for a unit that makes chemicals for pipelines, and stock of Graham Holdings Co (GHC.N), which once published the Washington Post, for a Miami TV station and other assets.
Buffett has plenty of ammunition to buy more businesses: Berkshire had $62.38 billion in cash as of Sept. 30.
P&G will take a noncash charge of 28 cents per share to write down goodwill and intangible assets, and adjust fiscal 2014 results to reflect Duracell as a discontinued operation.
Shares of Energizer Holdings Inc (ENR.N), Duracell's main rival, rose as much as 4.7 percent to a record high before easing to $128.43, up 2.6 percent.
UBS household products analyst Stephen Powers said private equity investors might look for value in Energizer, given how Buffett proved "willing and eager" to buy Duracell.
Goldman Sachs, Jones Day, and Cadwalader Wickersham & Taft advised P&G.
Reporting by Devika Krishna Kumar and Yashaswini Swamynathan in Bangalore, and Jennifer Ablan, Christian Plumb and Jonathan Stempel in New York; Editing by Savio D'Souza and Jeffrey Benkoe