Now we know.
Berkshire Hathaway to Buy Lubrizol for $9 Billion
By DEALBOOK
Berkshire Hathaway announced on Monday that it would buy Lubrizol for $9 billion in cash in one of largest deals ever for Warren E. Buffett.
Berkshire will pay $135 a share for Lubrizol, a specialty chemical maker based in Wickliffe, Ohio. The price is 28 percent above the closing price of Lubrizol stock on Friday.
Berkshire Hathaway is sitting on more than $38 billion in cash, and in his latest investment letter, Mr. Buffett indicated that he was on the hunt for “major acquisitions.”
“We’re prepared,” he wrote. “Our elephant gun has been reloaded, and my trigger finger is itchy.”
Lubrizol fits much of Mr. Buffett’s deal-making criteria. It is a large company, with earnings of $732 million in 2010. Those earnings are relatively consistent, too.
The product is to easy to understand: Lubrizol makes goods for the global transportation, industrial and consumer markets, including fuel additives for gasoline and diesel.
The management team has been in place for a while, too — another tenet of Mr. Buffett’s investment philosophy. Lubizol’s chief executive, James Hambrick, joined the company in the 1970s while still in school, and was named to the top job in 2004.
“Lubrizol is exactly the sort of company with which we love to partner — the global leader in several market applications run by a talented C.E.O., James Hambrick,” Mr. Buffett said in a statement. “Our only instruction to James — just keep doing for us what you have done so successfully for your shareholders.”
That Mr. Buffett is using cash to buy Lubrizol may indicate that he thinks Berkshire is undervalued. In an earlier annual letter, he lamented the use of stock in the $26 billion acquisition of the Burlington Northern Santa Fe Railway.
“The reason for our distaste is simple,” he wrote at the time. “If we wouldn’t dream of selling Berkshire in its entirety at the current market price, why in the world should we ’sell’ a significant part of the company at that same inadequate price by issuing our stock in a merger? If an acquirer’s stock is overvalued, it’s a different story: using it as a currency works to the acquirer’s advantage.”
At a recent price of $128,000, Class A shares of Berkshire Hathaway are still way off their 2008 peak of $147,000.
Citigroup and Evercore Partners advised Lubrizol on the deal, while the company’s legal counsel was Jones Day.
Lubrizol is Mr. Buffett’s second biggest acquisition in the last five years after Burlington Northern. And since 1995, only the $17.8 billion acquisition of General Re in 1998 and the $9.5 billion deal for MidAmerican Energy Holdings also top Monday’s offer, according to Capital IQ.
Correction: An earlier version of the story incorrectly indicated that Lubrizol was located in Indiana.
dealbook.nytimes.com |
