Berkshire Bags Lubrizol


Berkshire Hathaway will acquire 100 percent of Lubrizols shares for $135 per share, in a transaction valued at $9.7 billion.

Subject to closing conditions and approval by Lubrizols shareholders, the transaction is expected to be completed during 2011s third quarter. According to the companies, the price represents a 28 percent premium over Lubrizols $105.44 closing price on March 11 and is also 18 percent higher than Lubrizols all-time high share closing price.

Lubrizol is exactly the sort of company with which we love to partner – the global leader in several market applications run by a talented CEO, James Hambrick, said Warren Buffett, chief executive officer of Omaha, Neb.-based Berkshire Hathaway. Our only instruction to James – just keep doing for us what you have done so successfully for your shareholders.

This transaction provides compelling value to our shareholders and is a clear endorsement of the growth and diversification success Lubrizol has achieved, said Hambrick, Lubrizols chairman, president and CEO.

This is a transformative event for Lubrizol, one that we believe will provide tremendous opportunities for our company and its employees, the Wickliffe, Ohio-based additive manufacturer stated. This transaction represents a substantial return to our shareholders with significant value and immediate liquidity, and will allow Lubrizol to focus on long-term plans without the constraints of short-term public market requirements.

Lubrizol emphasized, it is business as usual – now and after the proposed transaction closes – with our ability to deliver innovative technology, outstanding service and superior global supply chain support in an enhanced way moving forward.

Geeta Agashe, vice president of consultancy Kline and Co.s energy research practice, said Lubrizol is a solid company that has been enjoying steady, profitable growth over the years.

Even though they’ve been doing well, historically, the stock has sold at a lower-than-industry level of pricing, Agashe told Lube Report. These sort of under-valued companies are appealing to Mr. Warren Buffett. We do believe this acquisition will go through, as Mr. Buffett has the financial wherewithal, nor do we do think there will be any anti-trust, anti-competition issues with this merger because Berkshire Hathaway is not a chemical company.

“This is a good deal for Lubrizol ownership, and a good one for Berkshire as well, as Berkshire now has gotten into an industry that is exercising control in the value chain and that has significant barriers to entry. This acquisition is going to make it difficult for competitors as well as consultants to understand how Lubrizol is faring, as their performance will not be as apparent as it was when Lubrizol was a publicly listed company.

Berkshire noted in its 2010 annual report that the larger the company, the greater its interest. We would like to make an acquisition in the $5 billion to $20 billion range, it stated in the report. Berkshires criteria includes businesses that demonstrate consistent earning power, and that earn good returns on equity while employing little or no debt.

Lubricant industry consultant Lewis Gaines noted that Berkshire is normally attracted to stable businesses with good management that can be acquired at reasonable valuation.

Their Lubrizol acquisition quiets a continuing debate in the investment community on the sustainability of the higher additive and oil margins that have been generated over the past two years, Gaines told Lube Report. The purchase price confirms the belief that industry capacity discipline, consumer acceptance of higher priced oils with longer service duration, and global growth for high quality lubricants will continue. Investment interest in other lubricant related companies will likely increase as a result.

Lubrizols additives segment, which includes lubricant and fuel additives, represented 72 percent of its revenues in 2010. Its advanced materials segment represented the remaining 28 percent.

For all of 2010, net income for Lubrizol as a whole amounted to $748.7 million on $5.4 billion in revenues, or $10.64 per diluted share. That compared to 2009 totals of $514.2 million on $4.6 billion in revenues, or $7.26 per diluted share.

The diverse activities of Berkshire Hathaway and its subsidiaries include manufacturing, utilities and energy, property and casualty insurance and reinsurance, freight rail transportation, finance, retailing and services. Geico is one of its insurance businesses.

According to Berkshires 2010 annual report, it has 68 non-insurance company subsidiaries. They include Burlington Northern Santa Fe railway, apparel company Fruit of the Loom, restaurant chain Dairy Queen, flooring company Shaw Industries and several energy companies such as Northern Natural Gas, MidAmerican Energy, Northern and Yorkshire Electric and Pacific Power.

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