Billionaire investor sees longstanding bet on Gillette pay off; one-day gain tops $645M.
January 28, 2005: 3:15 PM EST
NEW YORK (CNN/Money) - Legendary investor Warren Buffett had nothing but praise Friday for Procter & Gamble Co.'s $57 billion deal to buy Gillette, which helped him make about $645 million -- in one day.
Of course that's only a small part of the profit he's made on his holdings over the 16 years or so he's held the stake in Gillette (Research).
Based on an initial investment of $600 million by his Berkshire Hathaway (Research) holding company in 1989, the investment has seen a gain of more than $4.4 billion, not counting dividends. That works out to about a 14 percent compounded annual return.
So it wasn't surprising that Buffett, Gillette's largest shareholder, was singing the praises of the deal Friday.
"Over that time we've been happy with that investment but I've got to tell you I'm happier today," Buffett said in a statement played Friday during a conference call to discuss the proposed acquisition. "It's a dream deal,"
Berkshire Hathaway holding company is Gillette's (Research) largest shareholder with 96 million shares, or about 9 percent of the company.
Buffett said he would increase his holdings so that he would end up with 100 million shares of P&G by the time the deal closes. Under the offer from P&G, Buffett's current Gillette stock would translate to about 93.6 million shares of P&G.
While the companies said the deal was worth a premium of 18 percent for Gillette shareholders, a 3 percent drop in the price of P&G (down $1.30 to $54.02, Research) shares Friday in midday trading tempered the gains. But even with the drop, the deal would still be worth about a 14 percent premium based on midday trading prices.
Even for a billionaire like Buffett, who is one of the country's wealthiest men and one of the world's most widely followed investors, making more than a half-billion dollars is not bad for a day's work.
That's the apparent one-day paper profit Berkshire Hathaway would realize from Procter & Gamble's purchase of Gillette -- based on the midday price of P&G stock, and the exchange ratio for Buffett's 96 million Gillette shares.
Buffett is poised to become P&G's biggest shareholder after the deal. Barclays Global Investors is now the largest shareholder with about a 3.6 percent stake, according to Factset Research. But dilution from the deal would lower its stake, and its roughly 92 million shares would be less than what Buffett will end up with.
Buffett has been Gillette's largest single stockholder since 1989, when his firm bought $600 million in preferred stock, establishing an 11 percent stake in the maker of razors and other men's products, according to news reports. At the time, Gillette had recently fought off two hostile takeovers.