Power switch

Three takeovers since 1999

The first order of business for Procter & Gamble’s chief executive AG Lafley – who came out of retirement last year for a second stint at the company’s helm – was to sell the pet food brands acquired by his predecessors. After years of over-expansion, Lafley said the consumer product giant would narrow its focus to 70 or 80 of its biggest brands and shed as many as 100 others where performance has been lagging. The pet foods business was sold to Mars for $2.9 billion.

The second item on his to-do list? To offload P&G’s battery brands. Firstly, Duracell was sold to Warren Buffett’s Berkshire Hathaway for $4.7 billion. Then in December, the company announced the sale of Nanfu Battery to domestic private equity firm CDH Investments. (China Daily says P&G parted with a 78.8% stake in Nanfu for $556 million.)

How did P&G come to own Nanfu, a Chinese alkaline-battery manufacturer, in the first place? It was a result of its 2005 takeover of Gillette, which purchased 72% of Nanfu in 2003. At the time, Nanfu was a promising brand with annual sales of more than $80 million. Its batteries were distributed through more than three million outlets in China.

This isn’t the first time CDH has owned a big stake in Nanfu. In 1999, together with the private equity arms of Morgan Stanley, ABN-AMRO, and Singapore’s GIC, it jointly established China Battery International, and took control of Nanfu.

But after four years in charge the company sold its Nanfu stake to Gillette for an undisclosed amount.

Small wonder then that Jiao Zhen, the president of CDH, says the marriage between the two has been a long time coming: “Over the past 15 years, we have maintained a long and positive relationship with the management of Nanfu, which very much appreciates and respects us. Nanfu Battery also has a strong brand strength, an extensive distribution network and excellent execution.”

The deal between Nanfu and Gillette proved to be controversial. Industry observers complain that the American owner never had any interest in the Nanfu brand. Gillette instead wanted to take advantage of Nanfu’s distribution channels to sell its Duracell batteries, which boast higher margins. Some have said that Gillette “froze” the development of Nanfu to give Duracell a leg-up in the China market, says Business, a local magazine.

“All these years, Gillette’s promise of technology transfer and capital investment never materialised,” one of Nanfu’s former shareholders complains (he adds that the only notable contribution its multinational owner has ever made was to help Nanfu repair its production facilities when they were damaged in a flood in 2011).

Gillette also nullified Nanfu’s ambition of expanding overseas, reckons Business. The company registered as many as 337 patents in the US back in 2006 in an effort to export to the American market. However, worried that Nanfu would directly compete against Duracell, Gillette pulled the plug on the plan.

Now that it is Chinese-owned once more, will Nanfu do better? It remains China’s biggest alkaline battery maker with a 70% market share. “With CDH’s influence in the domestic consumer industry and capital markets, Nanfu will play a bigger role in China’s alkaline batteries market,” reports 21CN Business Herald. “Moreover, with CDH’s experience in cross-border, cross-regional deals, it can also help fuel Nanfu’s international expansion.”

But maybe it’s too little too late. The disposable battery market has been shrinking. While alkaline batteries powered a wide range of consumer electronics and children’s toys in past decades, many view the category as a sunset industry. That’s because consumers have shifted to smartphones and devices that have rechargeable batteries built in. While many disposable battery makers have transitioned to making rechargeable lithium batteries, Nanfu has been slow to make the change.

Still, CDH will help Nanfu expand, rather than “freezing” its development, National Business Daily suggests, though the newspaper also reckons that control of Nanfu may change hands again in the future.

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