
Why Warren Buffett Just Bought Duracell - fraXis
https://time.com/money/3585592/warren-buffett-duracell/
======
nabla9
Typical Buffet deal.

1) >Interbrand estimated that the brand value of Duracell stood at $4.9
billion

2) >Duracell maintains over 25% of the global battery market share.

Duracell has both brand and volume advantage over competitors in battery
business. Warren Buffett coined the term economic moat to describe the
advantages companies like Duracell have.

>INVESTOPEDIA EXPLAINS 'Economic Moat'

>The wider the moat, the larger and more sustainable the competitive
advantage. By having a well-known brand name, pricing power and a large
portion of market demand, a company with a wide moat possesses characteristics
that act as barriers against other companies wanting to enter into the
industry.

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shoesfullofdust
In my world, AA batteries are all about door locks. There are a lot of card-
reading door locks that depend on them.

Whenever a lock fails, step one or two or three is replace the batteries.
That's 4-6 batteries per lock.

As a maintenance/security procedure, once every couple of years, every battery
in every lock in the entire building is replaced. Doesn't matter if they are
dead, weak or brand new. That's hundreds/thousands of batteries.

That's a lot of batteries. And Duracell has multiple levels of
"pro"/"industrial grade" batteries. We buy them by the case.

I'm sure the markup on consumer batteries are huge, but I'd also think the
commercial use of double-As must dwarf the consumer market. Smart buy by
Warren is my guess.

What's needed in this space is a door lock that winds itself much like a
"perpetual" watch. Something that takes the mechanical energy used to turn the
door handle and turns it into stored energy that can be used to read the card
and unbolt the door.

And there you go. Make this thing :)

~~~
btgeekboy
It already is, though not for hotel room doors/etc. I used to have access to a
colo where racks rented individually (i.e. not in a cage) had a combination
lock that was electronic. To use it, you first "charged" it by turning the
knob back and forth a few times, then entering your code. The correct code
mechanically connects the knob to the locking mechanism, so turning the knob
unlocked the door.

In the case you mentioned, I do wonder if you could get a bit more energy from
the door itself rather than just the handle. For example, if the spring-loaded
self-closing mechanisms weren't just mechanical, but used that energy to
generate electricity, you might get a bit more out of it.

~~~
lamby
> To use it, you first "charged" it by turning the knob back and forth a few
> times, then entering your code.

Reminds me of the telephones where you had to wind them before using them..

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programminggeek
Duracell is a smart company and has been for a long time. Batteries are a
largely disposable thing and so the customer LTV is pretty awesome.
Rechargable batteries haven't really hurt the business signficantly and the
need for electronics keeps going up.

Even more, the R&D side of a battery company could be incredibly lucrative
with all the electric vehicles, portable electronic devices, and so on.

Buying a battery company in this day and age is a smart investment in tech,
even for a non tech investor like Buffet. After all, every electronic device
needs power right?

~~~
analog31
>>> Even more, the R&D side of a battery company could be incredibly lucrative
with all the electric vehicles, portable electronic devices, and so on.

The manufacturing technology too. There's a reasonable chance that batteries
of the future will still require handling and dispensing of chemicals, making
and sealing the cells, etc.

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jsonau
A bit off topic. Looks like Duracell has a cloud storage service, which is
really strange..
[https://www.duracellcloud.com/](https://www.duracellcloud.com/)

~~~
ctennis1
It's just a licensed use of their name. It's run by a company named Condre
Storage, and the devices shown are rebranded CTera networks storage
appliances.

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jstsch
Wow, I thought most consumers these days know that generic alkaline batteries
are just as good as Duracell alkaline batteries. Also, many gizmos come with
cheap lipo built in + an USB port these days, that seems to be the trend. I'd
think this is a business on the decline...

~~~
anigbrowl
_generic alkaline batteries are just as good as Duracell alkaline batteries_

As someone who uses a lot of batteries I disagree. I do a lot of field
recording work using powered microphones and that can mean going through 20+
batteries a day. Rechargeables would be ideal but that means a bunch of extra
gear to cart around and extra things to go wrong or be overlooked by an
assistant. Doing location work for film it's common to have 12+18 hour
workdays where you're on your feet all the time, and working in a different
location every day or ever multiple locations in the same day.

Long story short I've had terrible experiences with generic batteries. I
haven't done exhaustive comparisons with the various leading brands, but I've
come to strongly prefer Duracells. I have no idea what the watt/$ ratio is
because I just expense that; what I care about is reliability in a high power
drain situation.

For consumer stuff sure, most batteries are quite good. I wish it was a
business on the decline, I'd be thrilled to have efficient short-range
wireless power even if it only had a range of a meter or two.

~~~
Sven7
Just curious. How many wireless mics and made by whom? 20+ batteries a day
seems like quite a lot even for wireless mics

~~~
anigbrowl
I'd typically have 2 Sennheiser EW500s, with the receivers and transmitters
using 2 AAs each, plus 2 or 4 for a portable recorder, which is feeding 48v
phantom power to a condenser microphone or occasionally to two as well as its
onboard condensers that I usually have going as a backup. On a long day I'd
expect to run down two sets of batteries. It's not very efficient as I often
just leave stuff switched on when it could be off, but then you'll usddenly be
ready to shoot at short notice and you don't want to be the person holding
everything up while you switch 5 different devices back on.

~~~
Havoc
Never heard of phantom power being supplied by batteries. Is this common?

~~~
anigbrowl
In field recording, sure. Film work often means going to remote locations and
while generator or vehicle power is an option it may not be available if
there's no night work. Additionally, running off AC power, even in an
interior, means having another cable to wrangle - a pain in the rear every
time the camera position is changed or there's any sort of traveling shot.
It's better to have everything in a bag or mounted on a small wheelie truck.
Ideally I'd like to everything wirelessly (plug-on transmitters can supply
phantom from a 9v battery) but radio has its own downsides.

The current requirements are not that high so it's just a matter of a small
step-up transformer for the preamp. Some older pro microphones also use
T-power, which requires only 12v but delivers a somewhat less good
signal/noise ratio than the 48v phantom standard.

~~~
Havoc
ah - we're coming from slightly different worlds. I (was) used to mixer boards
which have mains feeding into it. I guess those aren't suitable for mobile
stuff.

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wtbob
For some reason, articles on time.com don't scroll…

~~~
exo762
You need to enable JS from time.com and akamai.com. Yes, there is no real need
to construct pages this way.

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TheAlchemist
It´s funny to note that the longest discussion in this thread is about the
time.com page not scrolling rather than about the deal itself !

As for the deal it´s classic Buffett - almost a sure win, little downside
risk, perfect timing. If you didn't read his biography yet (The snowball:
Warren Buffett and the business of life) I highly recommend ! One of the
wisest man alive.

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cheriot
It looks like there's a lot of performance difference between battery brands,
but Duracell isn't a high performer.

[http://www.batteryshowdown.com/](http://www.batteryshowdown.com/)

> Buy commodities, sell brands

> Consistent cash flow

This is a very Buffet style company acquired in a very Buffet kind of way.

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AceJohnny2
"[Proctor & Gamble's] goals in the process of exiting this business are to
maximize value to P&G’s shareholders and minimize earnings per share
dilution."

It was a sick joke in Snow Crash in the 90s, and it hasn't changed.

~~~
Chinjut
As someone who hasn't read Snow Crash, I'm curious what this means; could you
explain the reference?

~~~
yzzxy
You're not missing anything by not reading it. [0]

The above poster believes that the phrase

> maximize shareholder value

originated as a joke in the writing of Neal Stephenson and is not simply the
financial terminology it appears to be.

[0] It was _Cryptonomicon_ , not _Snow Crash_.

~~~
hobs
Disagree, Snow Crash is fun, and the intro about the Deliverator is great!

"Enough power to shoot a pound of bacon into the asteroid belt." How can you
not like that!?

~~~
yzzxy
No, I mean he wasn't missing the joke... I obviously enjoy Stephenson way too
well for my own good if I can spot an oblique reference to the wrong book.

------
gopi
Buffett has every right to consider taxes as part of a investment decision and
legally minimize it as much as possible. But he should quit saying that tax
rates don't matter to business decisions

~~~
3am
You're referring to this OpEd piece he wrote:
[http://www.nytimes.com/2012/11/26/opinion/buffett-a-
minimum-...](http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-
for-the-wealthy.html)

To quote:

"Would your reply possibly be this? “Well, it all depends on what my tax rate
will be on the gain you’re saying we’re going to make. If the taxes are too
high, I would rather leave the money in my savings account, earning a quarter
of 1 percent.” Only in Grover Norquist’s imagination does such a response
exist."

He was saying that raising top marginal tax rates would not result in rational
investors withholding their capital. This is entirely consistent with the
Duracell acquisition, which was tax efficient for both sides involved.

Your interpretation is completely wrong. The correct comparison would be if
Buffett did not do the Duracell acquisition because he didn't want to pay
capital gains on the increased value of his BRK-A holdings (which would be
idiotic, and further reinforces the point he made)

~~~
zaroth
Perhaps OT, but a smallish successful US startup is nearly half-owned by the
government due to taxes due post-acquisition. That's anything in the $1MM -
$10MM range... beyond which you can afford to spend more on lawyers to spend
much less on taxes.

It definitely does enter into the equation... do I really want to take all
that personal risk when a silent partner actually owns half the company?

------
tomrod
> When P&G released its earnings for the first quarter of fiscal 2015

Is the 2015 a typo, or has the financial industry operated in this quarter-
ahead method for awhile?

~~~
milesskorpen
Fiscal year != calendar year. It seems like P&G's fiscal Q1 = Q3 of the
previous calendar year.

~~~
tomrod
Ah, that makes a lot more sense. Thanks!

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DonGateley
Yet another brilliant cigar butt find. It would be fun as well as rewarding to
be able to see through Buffet's eyes.

------
WhitneyLand
The tax break and branding make sense, but EBITDA seems like such a poor
metric for valuation it's hard to understand why it's taken seriously. I'm
guessing that point in the article was emphasized more by Money mag than by
Buffet.

~~~
Havoc
>EBITDA seems like such a poor metric for valuation

Why? Its got stacks of research & history behind it so you'll have to provide
something a bit more substantial than "it's hard to understand why it's taken
seriously".

In fact I'm struggling to see anything of substance in that post.

~~~
waps
Well it's just like the government inflation "measurement". Everytime it shows
something they don't like, they remove stuff. I believe oil was the first
"WTF", then energy, and they just kept going. You see, according to the
government, oil prices high or low don't affect the lives of Americans. Not
that European governments did differently. Or that they stopped there. Then
housing was removed. Americans don't see their budgets affected by housing,
right ? Not according to the government. (this is talking about the measures
the government reports, ie. Core CPI (previously) and PCE-Deflator (now)).

I mean it's a question of degrees. Were the pre-1972 adjustments in the core
CPI fraud ? No, not really. Then with oil you start to have this nagging
feeling, and what they did last year ... well sorry to say, but that's
cheating. That's fraud, no question about it.

And EBITDA, sure. People used to use profit, for 50+ years. Then EBITDA. Why ?
Because if you loan money for paying dividends or doing share buybacks profit
will drop like a stone, EBITDA will be unaffected. But hell, if they had
stopped there, that would have been reasonable. But they started cheating.
Then came GAAP. This was modified 10 times over the last 2 decades or so,
never to the advantage of investors of course, every single time it was to
make companies look better than they did. And now most companies report non-
GAAP EBITDA ... Differences are such things as that in non-GAAP future
obligations (like a loan that's payment-free for a year) doesn't get counted
until the payments start. Non-money agreements (e.g. we're going to build
machines for X, they already paid 40% of the price, but we will only start
delivery next quarter), the 40% is counted, the future obligation is not.

I mean again there is a spectrum here. Profit vs EBITDA ... probably not
fraud. GAAP "adjustments" ... I think we can all agree that this is very
dangerous territory. Non-GAAP reporting, for me at least that crosses the
line.

~~~
bd_at_rivenhill
Fudging the inflation numbers has been coming on for a while now; I call it
the "screw the old people and the foreigners" strategy.

As for the issues with GAAP, I can't understand why the holes in off-balance-
sheet accounting haven't been closed given the number of disasters that have
occurred. Government accounting, of course, is basically indistinguishable
from bald-faced lying.

~~~
PhantomGremlin
> I call it the "screw the old people and the foreigners" strategy

It's only half of the strategy. ZIRP is the other half. Not only is inflation
being under-reported, the savings that "the old people" have can't keep up
with inflation because the Fed is artificially holding interest rates at zero.

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zem
is it just me, or has the page actually broken scrolling down?! that's a whole
new level of wtf.

edit: works in an incognito window, so it seems like some extension is
blocking it, but i can't think of anything an extension could block that
should be required to simply scroll down in a block of text.

~~~
thecoffman
Its NoScript. I had the same exact issue. Its a ridiculous world when I need
to enable Javascript just to view static text on a plain background. Sigh.

~~~
theg2
As a web developer, people like you always make me wonder why I try. Yes, some
sites abuse javascript for terrible purposes, but as CSS becomes more
powerful, are you going to start blocking that too?

Complaining that a site doesn't work because you purposely disabled part of
the code is akin to complaining your car doesn't work because you pulled the
alternator.

~~~
teddyh
More like the car won’t start because the AC is off.

~~~
voronoff
The car won't start because you are wearing a personal EMP that is disabling
the electronics. While older cars work fine, and some newer ones can fall back
to just using analog mechanics, more and more require the electronics to work.

~~~
mpyne
And yet, somehow I'd be very suspicious of cars that _require_ electronics to
make steering or braking work at all. Not everything needs to be turned into
fly-by-wire.

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joosters
In two words: tax dodge

~~~
aarondf
This is terrific tax avoidance, which is legal.

It's tax _evasion_ that you gotta look out for

~~~
brc
More correct is tax deferral.

