Warren Buffett's having a heckuva week.
On Friday, he made about $645 million from the merger of Procter & Gamble (NYSE:PG) and Gillette (NYSE:G), and today, as a shareholder in American Express (NYSE:AXP), he'll soon be getting shares in its Financial Advisors unit.
American Express, the world's largest travel agency, the fourth-largest credit card company, and the third-largest financial services company in the Dow Jones Industrial Average, announced that it was spinning off its Financial Advisors unit, with 100% of the shares going to stockholders. As one of the largest shareholders in the company -- as of 2003, Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) owned more than 151 million shares, or almost 12% of American Express -- Buffett will also own a tidy sum of the financial planning and advice service. The transaction is intended to be tax-free to shareholders.
American Express Financial Advisors generated about $7 billion in revenues in 2004, resulting in some $700 million in earnings. In addition to financial planning, it also offers asset management, insurance, annuities, and related services. The unit, which hosts about 12,000 advisors, generated about 21% of American Express' net income and will ultimately compete against the likes of Merrill Lynch (NYSE:MER), Morgan Stanley (NYSE:MWD), and Smith Barney, a division of Citigroup (NYSE:C). The spinoff is expected to be completed by the third quarter of this year.
The parent company will maintain its credit card and payment processing businesses, as well as its travelers checks and travel agency, and it will continue to serve as an international bank.
The spinoff follows American Express' earnings report last week, in which fourth-quarter profits were 17% ahead of last year as a result of cardholders charging record amounts to their credit cards. The Financial Advisors segment also reported significant growth, with net income up 20% to $218 million.
Buffett will become the largest shareholder in Procter & Gamble when the merger is completed, owning more than 93 million shares. His 12% stake in American Express is worth $8.1 billion, well more than the $1.5 billion cost of his longtime holding. He'll ultimately own about 12% of the new company, too, which at least one analyst has valued as a $10 billion business.
Yep, Warren's having a good week... and it's only Tuesday.
Read more about the Warren Buffett Way:
- P&G Poised to Prosper
- Procter & Gamble & Gillette
- Is It Time to Invest Abroad?
- They Don't Get Buffett
If you're one of those who contributed to American Express' record earnings, check out the Fool's Credit Center.
Fool contributor Rich Duprey believes he is Warren Buffett's long-lost love child. He does not own any of the stocks mentioned in this article.
