Windfall for Buffett in P038;G deal

Legendary investor Warren Buffett had nothing but praise on last Friday for Procter Gamble Co8217;s 57 billion deal to buy Gillette, whi...

Legendary investor Warren Buffett had nothing but praise on last Friday for Procter 038; Gamble Co8217;s 57 billion deal to buy Gillette, which helped him make about 645 million Rs 2,838 crore 8212; in one day.

Of course that8217;s only a small part of the profit he8217;s made on his holdings over the 16 years or so he8217;s held the stake in Gillette. Based on an initial investment of 600 million by his Berkshire Hathaway 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 per cent compounded annual return.

So it wasn8217;t surprising that Buffett, Gillette8217;s largest shareholder, was singing paens of the Friday deal. 8216;8216;Over that time we8217;ve been happy with that investment but I8217;ve got to tell you I8217;m happier today,8217;8217; Buffett said on Friday during a conference call to discuss the proposed acquisition.

8216;8216;It8217;s a dream deal,8217;8217; Berkshire Hathaway holding company is Gillette8217;s largest shareholder with 96 million shares, or about 9 per cent of the company. Buffett said he would increase his holdings so that he would end up with 100 million shares of P038;G by the time the deal closes.

Under the offer from P038;G, Buffett8217;s current Gillette stock would translate to about 93.6 million shares of P038;G. While the companies said the deal was worth a premium of 18 per cent for Gillette shareholders, a 3 per cent drop in the price of P038;G down 1.30 to 54.02 shares on Friday in mid-day trading tempered the gains.

But even with the drop, the deal would still be worth about a 14 per cent premium based on mid-day trading prices. Even for a billionaire like Buffett, one of the country8217;s wealthiest men and among the world8217;s most widely followed investors, making more than a half-billion dollars is not bad for a day8217;s work. That8217;s the apparent one-day paper profit Berkshire Hathaway would realise from the P038;Gdeal 8212; based on the mid-day price of P038;G stock, and the exchange ratio for Buffett8217;s 96 million Gillette shares.