Last week it was announced that Warren Buffett’s holding company, Berkshire Hathaway, plans to buy Duracell from Procter & Gamble. Buffett’s firm will pay around $5 billion for the company which raises the question… Is it worth it?
According to P&G, Duracell has 25 percent of the global market using its product. But this alone doesn’t make it a great investment. In fact, Duracell has been underperforming, compared to past performance in the last ___ years. More likely than not, Duracell appeals to Buffett because it owns and sells a product that consumers need to purchase again and again.
That’s where the problem arises. More and more products are being sold with rechargeable batteries built in. The “batteries not included” label isn’t as common as it used to be. Just look at your cellphone, cameras or laptops. As technology progresses, the majority of products don’t require separate disposable batteries.
Duracell needs to make a change because the age of the disposable battery is slowly coming to a close. This is where Buffett can help the company. With the already-established name they’ve made for themselves, Duracell now needs to refocus and look into new opportunities. For example, they have already been developing lithium-ion batteries, giving them the upper hand in the rechargeable battery market. Focusing on that technology and really pushing it to the next level could be huge for them.
So back to the question, will the deal be worth it to Warren Buffett? In my opinion, yes, as long as Buffett has a plan to change things within the company and evolve with the technology. Will it happen? We don’t know for sure, but we do know that there is potential and lots of hard workers on both Duracell and Warren Buffett’s teams. Give it a little time and I’m sure we’ll see Duracell back on top in the long run.