Buffett Unable to Shave Fees in Duracell Deal

Warren Buffett, in the latest chapter of his long-running battle with the securities industry, unsuccessfully sought to slash the investment banking fees tied to Gillette Co.’s acquisition of Duracell International Inc.

The billionaire investor, a director and major shareholder at Gillette, objected to the $30 million in fees that Duracell promised to Morgan Stanley & Co. and Kohlberg Kravis Roberts & Co., according to a filing this week with the Securities and Exchange Commission. Gillette ultimately would be responsible for paying these fees upon acquiring Duracell, the Bethel, Conn., battery manufacturer.

After taking several votes on the $7.82-billion acquisition, Gillette’s board approved the transaction Sept. 12, including payment of the full fees promised to Morgan Stanley and KKR, the holder of a 34% stake in Duracell. Buffett abstained from the final vote.

“Mr. Buffett advised the board of directors of Gillette that his abstention did not relate to the merger,” Gillette said in the SEC filing. “He objected, as a matter of principle, to the size of the investment banking and advisory fees payable by Duracell.”

Berkshire Hathaway Inc., the Omaha company controlled by Buffett, and affiliates hold a 10.8% stake in Gillette, the Boston-based manufacturer of Right Guard deodorant and Braun and Gillette shaving products. Buffett told Gillette after the board vote that Berkshire still intends to vote its shares in favor of the acquisition. The shareholder vote is scheduled for Dec. 30.

According to the SEC filing, Gillette’s board initially voted to approve the merger if the Duracell investment banking fees were cut to $18 million. Duracell’s board had already unanimously voted to approve the merger and the investment banking fees.

Henry Kravis, a principal at KKR, negotiated the size of his firm’s fee Sept. 11--one day before the acquisition was announced--with Gillette Chairman Alfred Zeien. The fee, according to the SEC filing, was based on KKR’s role in helping Duracell consider various alternatives and in negotiating with Gillette.

Attorneys retained by Duracell’s independent directors advised the board members that the total investment banking fees, at 0.39% of the value of the transaction, were consistent with the amounts paid in other large transactions. The Gillette board ultimately adopted this view as well, said Alexander Trowbridge, a Gillette director.

“The fees may well be on the high side,” said Trowbridge, a Washington management consultant who once served as U.S. secretary of commerce. “But when you take it in a broader context of the value of the transaction altogether, it is a very small portion.”

Nevertheless, Buffett has often complained about the fees charged by Wall Street firms. Walt Disney Co.’s $19-billion acquisition of Capital Cities/ABC Inc., which Buffett helped arrange, had low investment banking fees.