For Warren Buffett, P&G's tide has crested

Warren Buffett's transaction provides an exit from an investment he began making a quarter century ago

Procter & Gamble Co., one of Warren Buffett's top portfolio holdings, is about to lose the billionaire's influential backing at a time when it appears the company's own fortunes have peaked.

Thursday's agreement by Buffett's Berkshire Hathaway Inc. to turn over the $4.7 billion in shares it owns in the world's largest consumer products company in exchange for P&G's Duracell battery business comes one day after P&G shares hit a life-time high.

"He is basically cashing in at a 52-week high," said Doug Kass, who runs hedge fund Seabreeze Partners Management in Palm Beach, Florida. "He is stating in transaction that Duracell is inexpensive and P&G stock is expensive. And accomplishing this all in tax-efficient transaction."

Buffett's transaction provides an exit from an investment he began making a quarter century ago, and on which he had already been dialing back.

Under the deal, P&G will infuse about $1.8 billion of cash into Duracell before the expected closing in the second half of 2015.

Berkshire became one of P&G's biggest shareholders as a result of Buffett's investment in Gillette Co. P&G bought Gillette in 2005 in a $57 billion deal that Buffett supported. Berkshire held more than 101 million P&G shares in 2007 and cut the stake several times since then as the consumer-goods company faltered under previous Chief Executive Officer Bob McDonald. Berkshire had fewer than 53 million shares as of June 30.

Although P&G shares hit a life-time high of $89.88 on Wednesday, they have underperformed the market. Since its market bottom in March 2009, P&G has doubled in price. That pales next to the 147 percent gain in P&G's peer sector, the S&P consumer staples index, and the tripling in value of the wider S&P 500.

And P&G shares are expensive. They are trading at roughly 20 times forward earnings compared with a peer median of 18.7 times, and 16.5 times cash flow versus a peer median of 14.2. That means P&G is more expensive than half its peers in arguably one of the market's priciest sectors. The forward price-to-earnings multiple for the entire S&P 500 is about 16, according to Thomson Reuters data.

To be sure, P&G's 3.7 price-to-book ratio is cheap relative to the 5.3 median for its peers. Buffett favors measuring Berkshire's own worth using growth in book value per share, instead of the stock price.

In recent years, Berkshire has shed most of its multi-billion-dollar stakes in oil company ConocoPhillips and Kraft Foods Inc, the latter of which has since split into two companies.

Buffett was unhappy with Kraft's decision in 2010 to buy the British confectionery company Cadbury.