ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, September 13, 1996 TAG: 9609130137
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
DATELINE: BOSTON
SOURCE: Associated Press
Gillette took another shelf at the checkout line Thursday, adding the biggest name in disposable batteries to its best-selling razors with the $7.1 billion purchase of Duracell.
The deal would give Gillette Co. yet another well-known product to sell through its worldwide distribution network, while offering Duracell International Inc. a chance to grow in markets where Gillette already has strong clout.
``At the checkout counters, there's going to be nobody who can touch the magnitude of what we'll be able to do,'' said Alfred Zeien, Gillette's chairman and chief executive.
Duracell, the world's largest producer of alkaline batteries, sells its goods in supermarkets, drugstores and other places where Gillette sells Sensor and Good News razors, Right Guard deodorants, Oral-B toothbrushes and Paper Mate pens.
Zeien said Gillette had been looking to acquire a major new consumer line for the past five years. It identified Duracell as the best potential partner last fall, and the first contact came in January.
The deal is expected to be completed by year-end, if shareholders approve. Zeien said it has the support of investor Warren Buffett, whose Berkshire Hathaway is Gillette's largest single shareholder with 11 percent of its stock.
Kohlberg Kravis Roberts & Co., the buyout firm that bought Duracell in 1988 and still owns 34 percent, said it would also vote for the deal. KKR stands to be a big winner in the transaction.
One aspect of the deal is cost savings. Gillette said it expects $80 million to $120 million in annual savings beginning fully in 1999. In the two earlier years, savings will be growing to that level. They include savings from previously announced cutbacks to Duracell's European operation.
Zeien said there would be some additional job reductions, mostly through attrition. He did not say how many jobs will be lost.
Wall Street bid up Duracell shares 18 percent Thursday on the news. Duracell was trading at $58.121/2, up $9, on the New York Stock Exchange. Meanwhile, Gillette shares rose 871/2 cents to $66 in NYSE trading.
To cover restructuring costs, Gillette will set aside $275 million in the fourth quarter and $55 million when the deal closes.
The two companies noted Gillette's strong international reach will also add to the transaction. Duracell has a relatively low market share in some countries where Gillette operates an extensive sales network. The merger will allow it to increase Duracell's international clout.
Places where Gillette's sales are particularly strong compared with Duracell's include Germany and Japan. In Brazil, where Duracell's presence is confined to major cities, Gillette is a giant, Zeien said.
``Our points of sale in Brazil are down to the smallest little kiosk up on the Amazon River.''
Gillette had total sales last year of $6.8 billion.
Analysts said Duracell also could expect to benefit from Gillette's emphasis on research and development. ``Batteries are the kind of product that can be improved over time,'' said Diana Temple, a securities analyst at Salomon Brothers in New York.
Gillette, which is based in Boston, will leave the headquarters of its batteries division in Bethel, Conn., Duracell's hometown. Some functions will be transferred to Boston, but production should be unaffected.
``There are no plans to merge those facilities,'' said Charles Perrin, Duracell's chairman and chief executive.
Duracell's biggest competition in the United States for alkaline batteries, where it controls close to 50 percent of the market, is Eveready/Energizer, a unit of Ralston Purina Co. well-known for its Energizer Bunny.
In addition to alkaline batteries, Duracell also sells rechargeable battery packs, lithium batteries and zinc air batteries. It has annual revenue of about $2.3 billion.
The deal completes the divestiture of Duracell by KKR, which purchased Duracell from Kraft for $1.8 billion in 1988. It began selling shares back to the public in 1991 but had retained the 34 percent stake.
KKR's initial investment now looks pretty good, since the buyout firm raised $1.2 billion from its earlier sales of Duracell stock to the public and the Gillette shares it would receive from the sale to Gillette are worth about $2 billion.
Terms of the deal call for Duracell shareholders to receive 0.904 share of Gillette stock for each share they hold. Based on Wednesday's stock prices, the deal was worth about $7 billion, but Gillette's rise on Thursday brought the value to $7.1 billion, or about $59.66 per share.
LENGTH: Medium: 87 linesby CNB