Procter & Gamble Could Spin Off Duracell
In 2014, Duracell sales accounted for $2.2 billion of Procter & Gamble’s $83 billion in sales. As the largest personal battery provider, Duracell also accounts for 25 percent of worldwide battery sales. The business is solid, and Procter & Gamble isn’t disappointed with the performance, but it doesn’t align with the company’s strategic plans for the future.
CEO A.G. Lafley is putting in place a streamlined plan that will cut Procter & Gamble’s ancillary, less popular businesses in an effort to focus more on its core categories such as baby care and fabric care. As part of its strategic plans for the future, Procter & Gamble also intends to narrow down its portfolio of brands to compete in areas that, according its annual report are "structurally attractive and play to the P&G strengths."
"This will enable us to allocate resources to leading brands – marketed in the right set of countries, channels and customers."
According to the late October corporate announcement, the Duracell exit strategy is a two-step process. Step one was completed in late August when Procter & Gamble finalized an agreement to sell its interest in a China-based joint battery venture. The second step of the process is to exit the Duracell business.
Procter & Gamble has yet to decide how they would like to exit the business, but the preferred method is to split Duracell into a stand-alone company.
Is A Spin-Off In Sight?
Shareholders of Procter & Gamble could benefit by being able to exchange a portion of their Procter & Gamble shares for shares in the new company. Typically, spin-offs are favorable events to investors because they provide an increased valuation for the divested company as opposed to a private sale to another business entity.
This can be for a variety of reasons, including a public appetite for the new company – especially one as strong as Duracell. General investors may drive the valuation of the company higher than would otherwise be accomplished in a private sale.
A Duracell IPO may not fit inside Procter & Gamble’s future model for growth, but it could turn out as a viable long-term investment for the general investor.
Disclosure: The author holds no positions in the mentioned securities.
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