Berkshire Hathaway To Buy Lubrizol | March 14, 2011 Issue - Vol. 89 Issue 12 | Chemical & Engineering News
Volume 89 Issue 12 | p. 11 | News of The Week
Issue Date: March 14, 2011

Berkshire Hathaway To Buy Lubrizol

Dealmaking: Warren Buffett's holding company takes a shine to chemicals
Department: Business
Keywords: Lubrizol, Berkshire Hathaway
Lubrizol's Wickliffe, Ohio, headquarters building.
Credit: Lubrizol
Lubrizol's Wickliffe, Ohio, headquarters building.
Credit: Lubrizol

Berkshire Hathaway, the Omaha-based holding company led by famed investor Warren Buffett, has agreed to purchase the specialty chemical maker Lubrizol in a transaction valued at $9.7 billion.

Berkshire will pay $135 per share in cash for each of Lubrizol's shares outstanding. The offer represents a 28% premium over Lubrizol's price at its close on Friday, March 11, and is 18% more than Lubrizol's all-time highest closing price. The transaction value also includes about $700 million in Lubrizol debt. The companies expect to complete the deal in the third quarter of this year.

In 2010, Lubrizol earned about $750 million on $5.4 billion in sales. Some 72% of Lubrizol's sales come from its additives business, which makes additives for engine and industrial equipment lubricants. The rest of Lubrizol's sales come from its advanced materials business, a maker of thermoplastic elastomers, chlorinated polyvinyl chloride, ingredients for personal and home care products, and coatings additives.

Lubrizol rebounded strongly from the recession and has itself been in an acquisitive mood. Last year, it was in a bidding war with BASF to purchase Cognis. After BASF prevailed, Lubrizol settled for the much smaller purchase of Nalco's performance products group.

Lubrizol CEO James Hambrick says the transaction is a "clear endorsement of the growth and diversification success" his company has achieved.

Berkshire generated $136 billion in revenues in 2010 operating such well known firms as Government Employees Insurance Co. (GEICO) and the Burlington Northern Santa Fe Railway. Its most extensive holding in the chemical industry to date is the $3 billion in preferred Dow Chemical shares it acquired to help Dow finance its purchase of Rohm and Haas. Berkshire also owns building products maker Johns Manville and paint maker Benjamin Moore.

Berkshire intends to run Lubrizol as a subsidiary and keep its management and Wickliffe, Ohio, headquarters in place. "Our only instruction to James: Just keep doing for us what you have done so successfully for your shareholders," Buffett says.

Laurence Alexander, a stock analyst with Jefferies & Co., predicts the deal will spur interest in other acquisition candidates in the chemical sector. Companies that potentially make for attractive leveraged buyouts include Omnova, Huntsman Corp., and Solutia. The most desirable franchises overall, he says, are Albemarle, W.R. Grace & Co., Cytec Industries, and Solutia.

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