Deal snares Buffett $1b

NEW YORK - Even for legendary investor Warren Buffett, US$777 million ($1.09 billion) would probably be a pretty good day's work.

Berkshire Hathaway, the holding company run by the billionaire, may realise that much in paper profits in a single day from Procter & Gamble's purchase of Gillette.

Berkshire is Gillette's biggest shareholder. Its 96 million shares give it a roughly 9 per cent stake.

The merger terms, announced on Friday, call for Cincinnati-based P&G to swap 0.975 of a share for each Gillette share, valuing Boston-based Gillette at US$53.94 a share, based on Thursday's closing share prices.

The premium of US$8.09 over Gillette's Thursday closing share price would represent a US$776.6 million one-day paper profit on 96 million shares.

That's enough for Buffett to visit one of the nine Walgreen's in Berkshire's Omaha, Nebraska, hometown, and buy a top-of-the-line Gillette M3Power razor, at US$11.99, plus about 283 million replacement cartridges, at US$10.99 per four-pack.

Berkshire paid US$600 million for its Gillette shares, giving it a total profit from its investment of over US$4 billion.

The stock swap would give Buffett 93.6 million shares in the combined company. But Buffett has no plans to sell any of the shares.

In a statement, he said he would raise that stake by 7 per cent to 100 million shares, requiring an investment of more than US$300 million.

"This merger is going to create the greatest consumer product company in the world," Buffett said. "It's a dream deal."

Buffett, the world's second-richest person, according to Forbes magazine, might personally also have something to gain.

According to a recent securities filing, he owns 474,998 Berkshire Class A common shares, worth about US$42.1 billion based on last Thursday's closing share price of US$88,650.

An increase in the value of those shares resulting from the Gillette purchase would increase Buffett's net worth.

A regulatory filing shows Buffett is trustee for a further 1104 Berkshire Class A shares but disclaims any economic interest in them.

The estate of his late wife, Susan, owns 31,530 Class A and 177 Class B shares.

- REUTERS